World Bank’s State and Trends of Carbon Pricing 2025

The World Bank’s State and Trends of Carbon Pricing 2025 report comes at a pivotal moment when carbon pricing mechanisms cover nearly 28% of global greenhouse gas (GHG) emissions, generating over $100 billion in public revenues.

What is Carbon Pricing?

Carbon pricing is a market-based tool that assigns a cost to emitting greenhouse gases (GHGs), incentivizing industries and individuals to reduce emissions and internalizing the environmental and health costs of climate change.

Major Carbon Pricing Mechanisms

• Carbon Tax
  • A fixed cost per tonne of CO₂ emissions, often calculated based on fossil fuel carbon content.
• Emissions Trading System (ETS)
  • A cap-and-trade mechanism where emitters trade allowances under a capped limit.
• Carbon Credits/Crediting Mechanism
  • Tradable certificates earned through verified emissions reduction or removal projects (e.g., reforestation, methane capture).

Why Carbon Pricing Matters

• Environmental: Creates financial incentives to cut emissions
• Economic: Generates revenue (over $100 billion in 2024)
• Social: Funds climate adaptation, energy transition, and green jobs

Key Trends in 2025

• Rapid Instrument Growth
  Carbon pricing instruments increased from 5 in 2005 to 80 in 2025, including 43 carbon taxes and 37 ETSs.
• Expanded Emission Coverage
  About 28% of global GHG emissions are now covered by pricing tools.
• New Regional Entrants
  Countries like India, Brazil, and Türkiye are developing national carbon pricing frameworks.
• India’s ETS Innovation
  India’s proposed ETS (2024) follows a benchmark-based intensity model, not a strict emissions cap.
• Public Revenue Surge
  Carbon pricing mechanisms generated $100+ billion globally in 2024.

Sectoral Trends

• Power sector: Highest coverage
• Industry and aviation: Moderate
• Agriculture and waste: Largely excluded
• Nature-Based Credits Lead
• $14 billion raised (Q1–Q3 2024), primarily from afforestation and land restoration projects.
• Tech-Based Removals Emerging
• Interest is growing in Direct Air Capture (DAC) and Enhanced Rock Weathering, though delivery is lagging.
• Delivery Deficit
• Only 318,000 tons out of 8 million committed engineered removals were delivered in 2024.

Challenges in Carbon Pricing

• Unequal Sectoral Coverage
  Sectors like agriculture and waste are mostly absent from carbon pricing schemes.
• Volatile Voluntary Markets
  Markets for voluntary credits showed instability despite increasing climate ambition.
• Slow Tech-Based Delivery
  Low actual delivery of tech-based carbon removals vs. pledged amounts.
• Weak Monitoring in Developing Nations
  Lack of strong Monitoring, Reporting, and Verification (MRV) systems in low-income countries.
• Equity Concerns
• Carbon pricing can indirectly burden poor households through higher energy costs.

Policy Recommendations

• Expand Sector Inclusion
  Integrate agriculture and waste sectors with tailored methodologies.
• Upgrade Monitoring Systems
  Adopt blockchain and satellite-based MRV for better transparency and credibility.
• Stabilize Voluntary Credit Markets
  Harmonize standards across platforms like Verra and Gold Standard.
• Scale Engineered Removals
  Promote public-private investment in DAC and other carbon removal technologies.
• Ensure Just Transitions
• Redirect carbon revenues to fund clean energy, health care, and social protection for vulnerable groups.