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Over the past decade, governments and markets around the world have adopted carbon pricing as a central policy tool in the battle against climate change. By putting a cost on greenhouse gas emissions, these mechanisms shift incentives and drive investment toward cleaner alternatives, encouraging industries to rethink energy use and embrace innovation.
As of 2025, between 78 and 113 instruments are in operation or scheduled globally, including 43 carbon taxes, 35 to 37 Emissions Trading Systems (ETS) and numerous crediting mechanisms. Many schemes now incorporate carbon crediting mechanisms that reward emissions reductions in forestry and agriculture, pointing to growing interest in comprehensive approaches. The diversity of instruments illustrates how jurisdictions tailor systems to their economic contexts, balancing simplicity, cost predictability and environmental ambition.
New additions in 2024 propelled coverage from 24 percent of global greenhouse gas emissions to approximately 28 percent, highlighting the speed of expansion. Revenues have surged past an all-time high, generating over $100 billion in annual income that supports infrastructure and environmental programs, sustainable transport initiatives and green research projects around the world.
Jurisdictions implementing carbon pricing now account for almost two thirds of world economic output, demonstrating the policy’s growing acceptance across developed and emerging economies. From established European schemes to pioneering efforts in Asia and Africa, the movement toward priced carbon has become a defining feature of climate policy, shaping investment flows and corporate strategies on a global scale.
China’s national ETS launch in 2024 was the single most significant development, extending beyond the power sector into heavy industries such as cement, steel and aluminum. On its own, this system now covers around 15 percent of global emissions, underlining China’s commitment to market-based climate action.
Despite broader growth, agriculture and some service sectors remain largely unpriced, highlighting a significant gap in coverage. Nearly half of emissions from power and industry are now subject to a carbon price, yet effective pricing outside these areas has lagged behind.
Carbon pricing instruments fall into two main categories: carbon taxes and ETS. Carbon taxes provide a fixed price per ton of carbon, offering certainty and simplicity, while ETS establish a cap on emissions and distribute tradable allowances to promote flexibility and cost-efficiency.
Some jurisdictions employ layered systems, combining tax floors with trading schemes or phasing one instrument into another. This hybrid approach can deliver both price stability and environmental integrity, but requires sophisticated administration and strong regulatory oversight.
Price levels vary widely across schemes, from as little as $0.10 per ton to peaks around $160 per ton. However, only about 20 percent of covered emissions are priced in line with the Stern-Stiglitz Commission’s recommendations of $50 to $100 per ton by 2030. The majority remain below the depth needed for deep decarbonization.
By making carbon-intensive activities more expensive, carbon pricing reshapes market incentives, driving investment in clean energy, boosting innovation and creating green job opportunities. Empirical studies link these policies to significant renewable energy deployment and wider economic benefits.
Revenue recycling is a critical component of many schemes. Governments often use proceeds to reduce other taxes, support low-income households, or fund sustainable infrastructure projects. These measures enhance public acceptance and ensure that transition costs are socially equitable.
Despite growth in coverage, the share of global emissions effectively priced at levels sufficient for deep decarbonization remains stuck at around 6 percent. Prices are often too low or accompanied by exemptions, rebates and free allowances that blunt their environmental impact. These gaps risk undermining the market’s ability to drive deep cuts and create potential for carbon leakage between regions.
Looking ahead, further expansion is expected as more countries and subnational entities implement or strengthen carbon pricing schemes. Broader sectoral inclusion, higher price trajectories and robust international linkages will be crucial for scaling impact and preventing cross-border emissions shifts. Technology transfer and capacity building can support emerging economies in designing effective schemes.
Article 6 of the Paris Agreement offers a framework for international trading of allowances, encouraging linkage and integrity across systems. As border carbon adjustments emerge, coordinated policies will be essential to minimize trade frictions and maintain market stability.
For carbon pricing to achieve its full potential, policymakers must raise price levels, close coverage gaps and ensure transparent, equitable use of revenues. Collaboration through multilateral forums can foster best practice sharing, capacity building and regulatory alignment.
The global expansion of carbon pricing represents a transformative shift toward low-carbon economies. By embracing these market-based instruments, governments send a powerful signal to investors, companies and consumers that the era of cheap, carbon-heavy growth is ending.
Now is the moment for all stakeholders—nations, businesses and civil society—to accelerate deployment, close loopholes and raise ambition. With concerted action, carbon pricing can drive innovation, protect vulnerable communities and safeguard the planet for future generations, leaving no one behind in the transition.
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