World Bank’s Annual Carbon Pricing Report Highlights
The World Bank’s 11th annual report, “State and Trends of Carbon Pricing 2024,” reports a significant milestone in carbon pricing, with total revenues from carbon taxes and Emissions Trading Systems (ETSs) reaching a record high of USD 104 billion in 2023. This is the first time revenues have crossed the USD 100 billion mark, up from USD 95 billion in 2022.
Current Landscape of Carbon Pricing Instruments
The report identifies 75 carbon pricing instruments globally, an increase from 73 in the previous year, covering about 24% of global greenhouse gas (GHG) emissions. Despite this coverage, the report emphasizes that the price levels are still not sufficient to meet the goals set by the 2015 Paris Climate Agreement. Notably, less than 1% of global GHG emissions are covered by a direct carbon price that meets the threshold recommended to limit temperature rises below 2 degrees Celsius.
Sectoral Contributions and Recommendations
Traditional sectors like power and industry are the primary contributors to carbon pricing. The report suggests expanding carbon pricing to new sectors such as aviation, shipping, and waste, and considers including other significant industries like iron and steel, aluminum, cement, and fertilizers.
Carbon Price Adequacy
According to the High-Level Commission on Carbon Prices, to effectively limit global temperature rises to well below 2 degrees Celsius, the carbon price should have been USD 40-80 per ton of carbon dioxide equivalent (tCO2e) in 2020 and needs to reach USD 50-100/tCO2e by 2030. In 2024, only 7 carbon pricing instruments meet this criteria, covering less than 1% of global emissions. Adjusted for inflation, the current required carbon prices should range from USD 63 to 127 per ton.
Importance of Carbon Pricing
Carbon pricing is a crucial instrument for internalizing the external costs associated with GHG emissions, including damages to crops, healthcare costs from climate-related health impacts, and property losses from flooding and sea-level rise. By assigning a monetary value to carbon emissions, it aims to incentivize the reduction of GHG emissions at their source.
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