Launch of the 2024 State and Trends of Carbon Pricing Report

This week we attended the Launch of 世界银行 2024 State and Trends of Carbon Pricing Report presented at the European University Institute Climate Week conference in Florence, Italy. This hybrid in-person and online event provided an overview of this year’s report, highlighting the developments over the past 12 months relating to emissions trading systems, carbon taxes, and carbon crediting. It also marked the release of the modernized?Carbon Pricing Dashboard, which allows users to access the data underpinning the State and Trends report.??Here are some insights from the event that we'd like to share.

Access the 2024 State and Trends of Carbon Pricing Report

Jennifer Sara , Global Director, Climate Change Group, World Bank?

Nearly a quarter of global GHG emissions are covered by a carbon price now. While this might seem little, it should be noted that they have grown by 18% compared to a decade ago. She remains optimistic that carbon pricing will continuously grow, as in 2013 only 7% of emissions were covered by a carbon price.??

Most exciting takeaways from this report:?

1. Highlighting the importance of carbon pricing potential in driving innovation and its ability to help in delivering broader sustainability and development goals, carbon pricing generated record revenues of USD 100 billion in 2023.?
2. Promising signs of carbon pricing being implemented in new large middle-income countries that have made remarkable progress, such as Turkey and Brazil.
3. Governments, particularly from middle-income countries, are increasingly including crediting frameworks in their policy mix to deliver a range of objectives. This allows them to attract international finance and extend the carbon price signal to previously uncovered sectors, providing flexibility to domestic compliance instruments.?

Despite these positive developments, she acknowledged that the current levels and coverage of carbon pricing are insufficient to meet the ambitions of the Paris Agreement. More political commitments, patience for long-term strategies, stronger global frameworks, and sharing best practices are some of the actions that need to be continuously increased across countries. Last but not least, she hopes the report will not only inform but also inspire governments, the private sector, and civil society to design and implement policies that effectively price carbon and expedite climate action.?

Joe Pryor , Senior Climate Change Specialist, World Bank?

As Sara, Joseph presented highlights from the report, being:?

1. The growth of ETS and carbon taxes seem relative slow, with 75 carbon pricing instruments that estimates to cover 24% of GHG emissions. Contrast from the overall growth, the large middle income countries shown a remarkable progress in terms of the implementation in the Emissions Trading Systems (ETS), particularly Brazil, India, and Turkey. Within the last four months, those 3 countries growth rapidly and poised to be able to implement ETS within the next few years.??
2. In terms of prices, they remain significantly below the levels that are required to achieve broader climate goals, 1.5 degree target. So, most of the carbon taxes have stayed relatively stationary or slight increases. Large ETS such as EU are reporting quite significant delines, with a a few to be reportly increased, such as California.???
3. Despite limited price increases, carbon pricing revenue exceeded $100 billion threshold for the first time. This is around 50 times the size of total value of the global cut voluntary carbon market. Compared to the high magnitude of fossil fuel subsidies, reaching this threshold also give an indication to available governments to put this tool and ensure that a price signal is carried through in the economy.? Over half of this revenue has been allocated towards climate and nature based programs, partly because of the EU ETS mandates of 50% minimum requirement.?
4. More growth of carbon crediting mechanism as part of government’s policy mix. This growth not only talk about the increase numbers of implementation, but the diversity of how these policies progress. For example, domestic printing mechanism in China and additional of technologies and computer scientist to attract international climate finance in Vietnam’s ETS.?
5. In terms of carbon credit prices, various prices across market segments have emerged. This shows that the buyers are willing to pay a premium for credits with specific attributes. For example forest deforestation demand a higher price than other project categories.??Counter credit prices also get a higher price than exchange trade. This is because counter transactions offer greater flexibility to be able to enact the basic market strategies to the buyers. This reason is particularly important for the VCM, as they tried to do to meet specific purchasing strategies.??

In summary, there 4 takeaways from this report:?

1. Greater ambition is needed

While incremental progress over the last year has been shown, as there are currently 75 carbon pricing instruments that covers 24% of global emissions, carbon prices remain persistently below the levels required to achieve both the Paris and broader goals (1.5 – 2.0 degrees).?

2. Promising signs in middle-income countries

India, Brazil and Türkiye in particular have made great progress in terms of being able to potentially implement carbon pricing instruments by the end of the decade, which would potentially increase global coverage to around 30%.??

3. Carbon Pricing Adaptability?

Carbon Pricing Instruments have demonstrated their flexibility for their applications in the new economies and international circumstances to the new sectors. This particularly applied in the marine transport, and potentially agriculture in the future.??

4. Governments adopting crediting frameworks?

More governments have been seen to adopt crediting mechanisms? for a broad range of drivers and policy designs. This becomes another sort of demonstration of the flexibility and adaptability in the carbon pricing instruments.?

Rueban Manokara , Assistant Director, Global Partnerships, National Climate Change Secretariat, Singapore?

Lessons learned in Singapore’s carbon pricing journeys:?

In targeting more ambitious climate goals, Singapore became the first country in SEA to adopt a carbon tax. With this beginning, the journey has become more developed through the policy development process, different ways of studies, and landed on carbon pricing. From the carbon tax, they reflect a single price for carbon that allows them to adopt more ambitious climate policies and generates revenue to fund mitigation packages. These revenues allow the implementation and eventual achievement of those targets. For example, businesses will be incentivized to adopt carbon and energy-efficient processes, and individuals and households have greater incentives to adopt more sustainable and low-carbon lifestyles.?

1. First Lesson: The carbon tax level facility has helped Singapore provide price certainty, as well as time to adjust. Starting the carbon tax five years ago, Singapore started around USD 3.50 or $5.05 Singapore dollars. Acknowledging that it was nowhere at the levels that it should be, but that allowed the witnesses and those impacted by the carbon tax time to adjust. So, not only setting the prices, announcing it to businesses and the general population is also crucial so they have time to adjust and change their practices. For example, in 2022, we announced that we would raise it, and it has raised this year to about 18 US dollars, and they'll progressively raise it in two years to about 32 US dollars before going to somewhere between 36 to 58 US dollars by 2030. So, although the tax will increase in 2024, we are now seeing two years ahead of the increase to allow time for businesses to adjust and change their practices.?
2. Second Lesson: It is useful to have a clear and true transition framework. Economic competitiveness becomes a key factor and the underlying design element of our carbon tax system. This applies to any facility that emits above 25,000 tons, which effectively covers about 80% of our emissions. While giving them time to adjust is important, in order that these allowances are not taken advantage of, they need to be limited. Limited by time and amount, which will be decided by the facilities. This framework will align with the decarbonization plan while also affording the stakeholders allowance, thus creating credible transition pathways.?
3. Third Lesson: The use of carbon credits to offset. We get twofold benefits by using offsets of Article 6 (carbon credits) for a small part (5%) of our tax liability.?

Summary:??

• Cushion the impact for companies. This can make them source for carbon credits in a cost-effective manner and make the price signaling clear at which level. This will be cost effective for them to source for credit and surrender it as part of their carbon tax liability.??
• Our carbon journey tries to help Singapore transform towards a green economy. These linkages between carbon credits and carbon tax have catalyzed the development of Singapore’s carbon services and creative hubs. Currently we have over 100 companies that have come in to participate in this hub having markets and in supporting the infrastructure over the last 5 years.?

Eyüp Kaan Moral? , Head of Carbon Pricing Unit, Ministry of Environment, Urbanization and Climate Change, Türkiye

Lessons learned from Türkiye towards the implementation phase:?

Türkiye currently targets more on renewable energy sources, as they have big potential here as one of their journeys in decarbonization. For the implementation, currently, Türkiye is trying to raise a similar system to the EU ETS, which they have a working group under high-level climate dialogue. Currently, they have conducted detailed examinations of various aspects, such as sectoral coverage and allocation distribution.?

Stefano De Clara , Head of the International Carbon Action Partnership (ICAP) Secretariat?

Most exciting development over the past 12 months:?

1. We are witnessing great momentum in the development and implementation of carbon pricing tools and carbon taxes, specifically in the last decade. The number of these systems has now doubled, not only in the systems themselves but also in the share of global GHG emissions covered by those systems. If we consider our pricing more broadly, the number of systems and coverage has more than tripled.?
2. In the last 12 months alone, great momentum can be seen specifically across developed and developing countries. If you look at developed countries, many instances are operating to establish systems, such as focusing on expanding the scope of existing systems. In the European Union, for example, the UK and Canada are looking at launching a separate system for the gas sector. China, on the other hand, is prioritizing the sectoral expansion of its national ETS. At the same time, we're also seeing the beginning of the process to align with net zero targets in some jurisdictions. For example, the UK is currently considering the role of removals and integrating removals within the system.?
3. In these 12 months, we see how most of the G20 is taking the implementation of compliance of oil pricing as a key policy to decarbonize.?
4. Finally, in new and emerging economies, taking up carbon pricing implementation is also leading to diverse and innovative design features in the development of these systems. We heard again from colleagues from a Brazilian vendor here just now, and it's clear how they're taking the overall ETS blueprint but also adapting it to local circumstances. As a result, we have seen a proliferation of intensity-based systems and systems that mix, for example, features of the cap-and-trade system with features of a carbon tax. They also build a crediting protocol on the side of that. Coming up with innovative design features that can work for a diverse group of countries and in more and more circumstances is also obviously instrumental in achieving mainstream democratic implementation in more and more regions of the world.?

José Pedro Bastos Neves, Coordinator of Sustainable Finance, Ministry of Finance, Brazil?

In terms of the schedule, once the bill is passed, we have the mandate to establish the ETS. We're looking at a five-year period. But of course, there are several intermediary steps that we have to go through before reaching the final steps in ETS:?

• First step, establish the regulatory agency that will take care of the ETS. We expect that early this year we should have this sorted out. In total, we have at most two years until we have all the directives published. In terms of the required instruments for ETS, we start with establishing a registry. So, we need to establish it as soon as possible, even for the voluntary market.??
• Next, we're going to move to MRV, establishing all the sectors that we're going to start with and the information requirements that we'll need.??
• After that, we will have the reporting period, which will be in two years, where firms will be required to submit reports. This will be really important for us because this is the information source that we're going to use to establish our allocation plan.??

Looking through this, there are several steps in logical order, which we will follow sequentially. So, in five years, we can have something coherent working and see the results in terms of carbon pricing in actual practice and visits.?