What is the Current Status of Carbon Pricing Around the World?
According to The World Bank, 64 carbon pricing initiatives have been implemented in 45 countries around the world. Economists and policymakers don’t agree on one universal method to reduce carbon emissions, so every program consists of its own terms. A majority of the world's developed economies have implemented federally mandated carbon pricing programs; the United States and Australia are the only countries who have not yet followed suit.
So how are major economies dealing with carbon reduction?
China
The nearly 6% increase in emissions reduction between 2020 and 2021 is largely due to Chinese efforts. Though China has put carbon-reducing instruments in place for almost a decade, 2021 marks the first year the world’s largest GHG emitter rolled out a national plan.
After a gradual start with trading systems across 8 regions in 2011, China opened the largest carbon market in the world. The emissions-trading system (ETS) gives polluters a yearly limit on the amount of carbon they are permitted to emit. Companies can buy or sell their allowances. Pricing per allowance is expected to be under $8 per metric ton, which aligns with US pricing but is still much lower than UK and European standards. The initial rollout only targets the power sector, with plans to move into seven other industries in the coming years. With President Xi Jinping vowing to reach peak emissions by 2030 and carbon neutrality by 2060, China’s forward momentum is expected to have a huge impact.
Europe
The European Union adopted the world’s first ETS in 2005. Their aggressive program covers almost half of the EU’s emissions, with plans to hit net neutrality by 2050. In 2018, the European Commission added an additional program, called the Effort Sharing Regulation, to place further restrictions on industries not included in the ETS. The Regulation targets sectors like agriculture, transportation, and construction; the industries under The Regulation make up almost 60% of Europe’s total emissions.
Europe has also adopted the 2030 Climate Target Plan. The ambitious plan will restructure the current climate legislature and the Effort Sharing Regulation to reach pre-1990 carbon levels by 2030.
UK
The Industrial Decarbonization Strategy, the UK’s opened its nationwide ETS this year with prices at £50 ($69.26), which was over £5 ($6.92) higher than the EU’s pricing at the time. 83 million permits will be up for auction this year, available to the same companies that were included in the EU’s ETS before Brexit. The UK’s strategy includes government funding for companies who struggle to find funding for green initiatives, and reforms aimed at reducing carbon leakage.
The UK expects to reduce emissions by two thirds by 2035, and hit net-zero by 2050.
Australia
Though Australia’s Clean Energy Future plan was successful at reducing emissions when it was introduced in 2011, it was met with such backlash that it was repealed just two years later. As it currently stands, carbon reduction is not legally required, and Australia has not committed to a net-zero deadline. However, Australia’s emitters are taking steps on their own to reach net-zero by 2050 by investing in greener technology. These companies are watching the rest of the world’s carbon markets, and making moves to get ahead of any federal program that may be enacted in the future.
Canada
Canada first introduced their current carbon pricing strategy in 2016. Under the Pan-Canadian Framework on Clean Growth and Climate Change, the federal government gave each province three years to set their own carbon pricing program. All programs were required to meet federally mandated benchmarks, and the government provided the framework for pricing programs for provinces that did not develop their own initiatives. The provinces that opted into the federal program are still given the revenue to reinvest as they see fit. Canada has also implemented two additional programs to reduce carbon pollution at the local level. The Climate Action Incentive program awards additional tax returns to eligible families in certain provinces. The Climate Action Incentive Fund provides aid to small businesses, medical and educational institutions, and other federal programs.
Latin America
Though Latin America has been slow to respond to climate change, several countries have implemented programs to cut carbon emissions. Mexico, Colombia, Argentina and Chile have all initiated carbon taxes, though the prices are far below the recommendations of the Paris Agreement. Mexico is also testing its own ETS system, targeting its power and industry sectors. Chile’s Climate Change bill includes an aggressive cumulative emissions reduction target for 2030, and plans for a future cap-and-trade system. The bill is still being considered by the Chilean Congress.
United States
Despite no federally mandated carbon pricing system, there are still big efforts being made to reduce carbon emissions in the US. California initiated its California Climate Investments program in 2015. This cap-and-trade system has raised billions of dollars that have been reinvested back into green initiatives throughout the state. Eleven states in the Northeast have come together to create the Regional Greenhouse Gas Initiative, a mandatory cap-and-trade system across multiple sectors. RGGI prices are still incredibly low compared to European markets. Pennsylvania and Virginia are planning to join the initiative. Though already a member of RGGI, Massachusetts has a second program that further targets its power sector. Finally, in April 2021, Washington passed legislation on their own aggressive cap-and-trade program. Washington’s market will open January 1, 2023 and expects emissions to be 45% under 1990 levels by 2030, and net-zero emissions by 2050.
Though many US legislators acknowledge carbon pricing as an effective way to combat climate change, the jury is still out on whether a federally-mandated carbon tax will be enacted or some other form of market system is adopted. Regardless of what the government decides, more consumers are calling for carbon neutrality, and emitters are wisely taking steps to reduce carbon emissions to meet the demand and prepare for future legislation. Working with HYCO1 is an easy and affordable way for emitters to eliminate carbon emissions. Our breakthrough catalyst and conversion process turns costly CO2 emissions into high-value, low CI-score products. Even better, HYCO1 plant partners are able to significantly reduce their total cost of production while lowering the CI score of their own products.
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