Chapter 01 · Climate & transitionClimate & Greenhouse Gas Emissions
Carbon pricing
Definition
An approach that assigns a monetary cost to greenhouse-gas emissions so that emitters internalise the climate damage they cause. Direct carbon pricing takes two main forms: a carbon tax, which fixes a price per tonne of CO₂e, and an emissions trading system (ETS), which caps total emissions and lets the market set the allowance price. Carbon crediting mechanisms form a related third family.
References
87 implemented policies; ~30% global emissions coverage; US$107bn 2025 revenue; instrument diversity.
Tax vs ETS mechanics; Paris Agreement market provisions; mitigation-cost rationale.
Overview
What it means
Carbon pricing operationalises the polluter-pays principle at economy scale. The World Bank's State and Trends 2026 report counts 87 implemented direct-pricing policies covering nearly 30% of global emissions — roughly double the share of a decade ago — and over US$107 billion raised in 2025, revenue increasingly recycled into climate and development spending.
Headline prices diverge sharply by region (from a few dollars to ~US$68/tCO₂e average in Europe), and the "price" quoted is nominal: effective costs depend on free allocation, exemptions and coverage. A reference corridor from the High-Level Commission on Carbon Prices frames prices needed for Paris alignment.
How it is used
Governments choose between tax (price certainty) and ETS (quantity certainty), or layer both; companies manage exposure through internal carbon prices and compliance strategies; the World Bank/ICAP Carbon Pricing Dashboard tracks instruments, prices and revenues globally.
Why it matters
Carbon pricing is the most extensively deployed economic instrument of climate policy; its coverage, level and design are leading indicators of how seriously economies are charging for emissions.