Current Status of Carbon Pricing Worldwide

Carbon pricing refers to any mechanism that puts an explicit price on carbon or total GHG emissions. These include emissions trading systems (ETS), carbon taxes, carbon credits, and internal carbon pricing. Emissions trading systems set a total cap on emissions, and the price of carbon is determined by the market. Carbon taxes give certainty on the price of carbon but do not ensure reduced emissions. Carbon pricing is a market mechanism that adds a cost to emitting CO2 or other greenhouse gases, in order to account for the externalities associated with these emissions. This includes not just climate change but also health and social benefits of reduced pollution. It is a powerful tool that, used in tandem with other strategies such as R&D support, can catalyze decarbonization.

Carbon pricing can be categorized into two main segments, i.e. explicit carbon pricing and implicit carbon pricing. The explicit carbon pricing includes emissions trading systems (ETS), carbon taxes, carbon credits, and internal carbon pricing. Explicit carbon pricing mechanisms fall mainly under emissions trading systems, carbon taxes, internal carbon fees, and carbon credits. Other measures are considered to apply an implicit carbon price, where the costs of, for instance, renewable energy investments and energy efficiency improvements, are taken into account.

Carbon prices around the world rose during 2021, in large part due to net-zero targets and tightening pollution restrictions related to COP26. Other contributing factors have been greater use of coal due to higher natural gas prices, a price floor push from Germany, and upcoming deadlines for options trading. This report offers information on the carbon tax, ETS, and carbon pricing under consideration or development in the US & Canada, Latin America, the Middle East, Asia, & Oceania, Europe, and Africa. There are 35 carbon taxes that have been implemented worldwide, with nine currently under consideration and one that is being scheduled. The carbon pricing leading cases are found mainly in Europe, Asia, and Canada.

What is the current status of carbon pricing?

The price of carbon in Europe and the UK Emissions Trading Systems (ETS) climbed steadily in 2021 signaling global rises in carbon prices. Several factors have contributed to the record-breaking prices, among them a natural gas deficit that resulted in higher demand for coal, and increased ambition of decarbonization targets before and during COP26.

In July 2021, Europe released a proposal to expand the ETS in line with its updated 55% emission reduction goal. The changes would include a reduction in the emissions cap, inclusion of the maritime sector from 2023, a new ETS covering transport and buildings, and the introduction of a price on carbon emitted outside Europe for imported goods by 2026. Europe is debating further additions and adjustments to the ETS, such as a carbon border adjustment mechanism to avoid so-called carbon leakage and maintain competitiveness against foreign manufacturers.  There are 31 active ETS’s and 35 carbon taxes worldwide at both national and sub-national levels. In ETS’s, responsibility for tracking emissions and paying for allowances falls largely on operators of industrial facilities or power plants. The imposition of carbon taxes falls mainly on importers and distributors of fossil fuels, with some also taxing producers. Just five jurisdictions place the tax directly on users of fossil fuels.

What are the internal carbon prices imposed by major companies?

Many companies elect to impose an internal carbon price on certain activities, or a shadow carbon price as a representative cost. Implementation varies widely. BP, for example, applies a carbon price to investment appraisals for projects that are expected to surpass a certain GHG emission threshold. Shell began applying a carbon price of $40-80/ton in 2000 for investment decision purposes. Globally there are over 850 companies reported using an internal carbon price in 2020, including 152 in the energy sector. This is a 20% increase over 2019 and includes nearly half of the top 500 largest companies. Another 1,200 companies announced their intention to adopt a carbon price in the next 1-2 years. Uptake of internal carbon pricing is also driven by several factors, including government regulation, internal climate commitments, driving energy efficiency and low-carbon investment, incorporating of climate risk into future investments, and stakeholder expectations.

Whrich are the major key players that use internal carbon prices & gas majors?

Repsol, Equinor, Shell, ExxonMobil, Total, BP, and Chevron are some of the major oil and gas companies considered for a company-level approach to internal carbon pricing in this report.

Internal carbon prices & gas majors, by key players

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Market report scope

Market report scope

• Introduce the mechanics of carbon pricing schemes.
• Examine the effectiveness of carbon pricing in reducing emissions.
• Review the current price of carbon and sectoral coverage globally.
• Learn where carbon pricing is currently applied or under consideration.

Reasons to Buy

• Learn what factors have led to record-high carbon prices in 2021.
• Understand what pricing levels are needed to meet Paris targets.
• See which oil & gas companies are using carbon pricing.
• Understand where carbon pricing is likely to be implemented.