CAN CARBON PRICING BECOME A GLOBAL STRATEGY?
In the global effort to combat climate change, carbon pricing has steadily shifted from a niche economic proposal to a mainstream climate strategy. As countries search for effective, scalable tools to curb emissions, the once-radical idea of putting a price on carbon has found a central place in national and international policy frameworks. At its core, carbon pricing reflects a simple principle: if greenhouse gas emissions contribute to global harm, those responsible should bear the cost. Whether through a tax or a market-based mechanism, carbon pricing aims to correct what economists call a market failure, the inability of the market to account for environmental externalities. Instead of treating the atmosphere as a free dumping ground, carbon pricing assigns a monetary value to emissions, influencing behaviour by altering cost structures. This mechanism incentivises cleaner production, encourages energy efficiency, and creates pressure to innovate. According to a recent analysis by the OECD and International Energy Agency (IEA), carbon pricing initiatives now cover roughly 30% of global CO₂ emissions. This is a significant leap from where things stood just a decade ago, when fewer than 15% of emissions were priced in any form. While that growth reflects increased political will and policy experimentation, it’s important to recognise what this also implies – 70% of emissions still go unpriced. In sectors like agriculture, shipping, and aviation, effective carbon pricing is either weak or absent. The Carbon Pricing Leadership Coalition emphasises that for pricing to influence behaviour meaningfully, it must be both widespread and robust, two qualities still lacking in many jurisdictions.
Countries adopt different models of carbon pricing based on political feasibility, institutional capacity, and economic context. Carbon Taxes used in countries like Sweden, Chile, and South Africa set a fixed price per ton of CO₂. This model offers predictability and administrative simplicity. Cap-and-Trade Systems, such as the EU Emissions Trading System or China’s national carbon market, set a maximum limit on emissions and allow companies to trade emission allowances. Some countries are beginning to hybridise these approaches, combining taxes with trading mechanisms or embedding pricing within broader climate legislation. In Sweden, for instance, a high carbon tax, above USD 130 per ton, coexists with other regulatory and fiscal incentives, helping the country achieve both emission reductions and economic growth. By contrast, in the EU, the ETS has gradually evolved to cover more sectors and reduce the number of permits, which has recently pushed carbon prices upward. The revenue generated from carbon pricing can be substantial. According to the IMF, global carbon tax and trading revenues exceeded USD 100 billion in 2023, with many governments redirecting funds toward climate adaptation, public transport, and low-income household rebates. British Columbia’s model, before its recent repeal, stood out for using tax revenues to reduce personal and corporate income taxes, demonstrating that carbon pricing doesn’t have to hurt economic competitiveness.
Beyond government-led systems, voluntary carbon markets have emerged to meet the demand from corporations aiming for net-zero targets. These markets allow businesses to offset emissions by purchasing carbon credits linked to reforestation, renewable energy, or conservation projects. However, questions over the integrity and verification of these credits have sparked controversy. A 2023 investigation by The Guardian and Corporate Accountability revealed that many forestry-based offsets failed to deliver the promised carbon savings, leading to a glut of junk credits with little real impact. This lack of credibility risks undermining public trust and reducing the effectiveness of voluntary efforts, especially when more than one billion unused credits remain unretired, raising doubts about whether they were ever truly legitimate.
Despite notable progress, carbon pricing still faces considerable headwinds. Political resistance is strong in many regions. Public opposition to rising energy costs has forced governments to delay or cancel pricing schemes, a prominent example being the rollback of France’s fuel tax after the Yellow Vest protests. Price levels remain too low in most systems. The High-Level Commission on Carbon Prices recommends a price range of USD 50 to 100 per ton by 2030 to align with the Paris Agreement. Yet the global average remains under USD 10. Fragmented systems complicate global coordination. Without harmonisation, companies can exploit regulatory differences, relocating emissions to jurisdictions with laxer rules, a phenomenon known as carbon leakage. To be effective in the critical decade ahead, experts argue carbon pricing must do three things: expand coverage across sectors and regions; increase price levels to better reflect the social cost of carbon; and strengthen transparency and trust in both compliance and voluntary markets. These steps won’t be easy. But with carbon pricing now covering nearly a third of emissions, and with the pressure of international climate commitments rising, the world appears to be moving, however slowly, toward treating carbon not as a free commodity, but as a costly liability.
