The World Bank recently released its annual review of carbon pricing systems around the world. The good news is that the number of jurisdictions with carbon pricing programs is up to 57 and the revenues governments have collected has increased $11 billion to $44 Billion in 2019. Carbon pricing is also a truly global endeavor with 11 new initiatives coming online in the past year including, Canada, Columbia, South Africa, which implemented that continent’s first economy wide carbon tax, Vietnam, and Ukraine. This is not to mention China, the world’s largest greenhouse gas emitter, which will launch a national emissions trading system in 2020.
The report also noted several instances of political unrest tied to carbon pricing levels. This speaks to challenges of designing policies that protect low-income households and convincing middle- and upper-income voters on the necessity of incurring such costs. These challenges belie the bad news that of the current carbon pricing initiatives, only 20% cover a sufficiently broad scope of emitting sectors and only 5% are priced at levels, in the range of $40 to $80, necessary to meet the Paris Climate Accord goals of staving off a 2-degree Celsius temperature increase. When designing carbon programs, more focus needs to be put on implementing broad coverage and ensuring low income needs are addressed.
Although prices in California’s cap and trade market have grown steadily, they are at 40% of the minimum recommended level. This gap underscores a key point with carbon markets, particularly offsets, which is that emission reductions are undervalued and that there are opportunities for investment capital to generate reductions at market rate returns.