Carbon Pricing: State and Trends of

State and Trends
Carbon Pricing
of
2022
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FOREWORD SUMMAR CHAPTER CHAPTER CHAPTER ANNEXES 2

Y 1 2 3
T h e development of th is report was led by the Wor ld B a n k a n d prepared by L a b u h n ; Ca mi l le Leboeuf; Su n g w o o Lee; Scott Legree; E m í d i o Lo pe s ; L u c a L o Re;
experts f ro m the Wor ld B a n k an d Clim ate Focus. Contr ib uti o ns, in cl u d in g o n data Glend a Bezer ra L u sto s a; M e m o r y M ac h i n ga mb i ; L í a L izze tt e Ferreira M árqu ez; Ta is e i
an d i nfo r m ati o n o n m a n d ato r y c a p - a n d - t r a d e syste ms , were provided by the M ats u k i; E r m i Miao; M i n istr y of E nv i ro n m e n t a n d Pa r ks ( Go ve r n me nt of Alberta,
Inter nati on al Car bo n Acti on Partnership. Ad diti on al data a n d contrib uti on s were also Can ad a); M in istr y of the E nv i ro n m e nt ( E sto n i a) ; M in istr y of the E nv i ro n m e nt (Japan );
provided by Eco syste m Marketplace an d CDP. M in i str y of Fi n a n c e ( L u xe m b o u rg ) ; Sa ra Moarif; Sarah Moyer; D an iel Na chti gall;
N e w B r u n s w i c k Climate Ch an g e Secretariat; Offi ce of the Revenue C o mm i s s i o n e rs
Si n o Car b o n I n n ovati o n & I nvestm e nt an d S& P Global Platt s also suppor ted ( Ire lan d ) ; Matt hias Ofner; K l a u s Op p er m an n ; I a n Par r y ; Jeannett e R a m i r e z ; K i m
development of th i s report. Ric ard ; Su s a n n e Riedener; Mar is ol R i ve ra - P l a nt e r ; G e r m á n Ro me ro ; G i ovan n i Ru ta;
José Rica rd o R a m o s Sales; Rico S a l g m a n n ; M ar is s a San ti ka r n ; Ju an Pedro Searle; Pola
T h e Wor ld B a n k tas k team responsible for th i s report wa s co mp os ed of Joseph P r yo r, S h i m ; Gustavo Saboia Fontenele e Sil va; Ed s o n Silveira So b r in h o ; Moekti H an d aj a n i
J ich o n g Wu , C am ero n Bye rs, M u stafa O z g u r Bo zc aga , Alejandra M azar ie go s , M a r i za So ejachmo en ; Will Space; S a n d hy a Sr in iva s an ; Kati e S u ll i va n ; Swe d i s h E n e rg y A gen cy ;
Montes de Oca L e o n , Seoyi K i m , H a r i k u m a r Gadde, a n d D i r k Heine. To k y o Metropolitan Gover n ment; S i m o n Tu d i ve r ; M aiko Uga; Un der Secretariat of
P u b lic Revenue, M i n istr y of Ec o n o my ( A rg enti n a) ; A n d hy ta Fi rs e l ly U ta mi; M arijke
T h e Cli mate Fo c u s team includ ed D a r ra gh Co nway, Carolina I n c l a n , L ie ke ‘ t Gilde, Ver m aak ; Stefanie Wu kov its ; Olga Yu k h y m c h u k ; a n d Mo urad Zian i .
I m o g e n L o n g , Pau l D i n g k u h n , E l i s a Pe r p i gn a n , an d A d r iaan Ko r th u i s.
Report d es ign wa s done by Ky n d a an d editi ng wa s done by E psteinWords.
T h i s report benefi ted greatly f ro m the i n s i g h t s a n d contrib uti on s f ro m: Megersa
Abera Abate; Ky e o n ga h A h n ; Gabriela A l a rc ó n - E st e v a ; A n d rés C a m i l o Á l vare z; E r i k T h i s report h a s been developed as part of the Kn owl ed ge P ro g ra m un der the
va n An del; Veli A u v in en ; Isabella Mar ia Pereira de Áv ila; M arco Anto nio M u rci a Par tn ers h i p for Market I mp lem entati o n .
Baquero; P ía Biestro; Pierre B o u ch ard ; Br u n e i Climate Ch a n g e Secretariat, M in istr y of
Develop ment; Marcelo Caff era; Alexand re X av ie r Ywata de Car valh o ; M arcos Castro;
Central Stati sti cs Offi ce (I rel an d ); D aniella Marques Cosenti no; Marta H e r n á n d e z
de la C r u z ; Fran c is co D a ll'Ors o ; D e p ar tme nt for Bu s in es s E n e r g y an d I n d u st r i al
Strategy (U nited K i n g d o m ) ; D e p ar tme nt of Fi n a n c e ( G over n m en t of the N o r thwe st
Terr itor ies, Can ad a) ; D e p ar tme nt of Fin an ce ( Ir elan d ) ; De p ar tm ent of I n d u st r y,
Science, E n e rg y a n d Resources ( Au strali a); I ra Dor b an d; B il l D r u mh el l er ; M ao s h e n g
D u an ; T h o m a s D u ch a in e; Jane E l l i s ; D o m i n i k E n g le r t; K l e n i ze Ch a ga s Fávero; S i m o n
Fellermeyer ; Si m o n e vo n Felten; D emetr io Fl or enti n o de Toledo Fi lh o ; Caro ly n
Fi s ch er ; Teresa Solozab al Gallego; A r i c Gliesche; M ar le n Goerner; Gover n ment of
Sa s katch e wa n , Canada; Gover n ment of Singapore; Greenhouse G as I nve nto r y &
Research Center (Re p u b lic of Ko re a) ; Stephane Hallagatt e; Sh a r l i n H e m ra j ; M i n
H o u ; I ñ a k i G ili Jauregui; A n gel a Na n eu Ch u r i e Ka ll h au ge ; Jus si K i vi lu o to ; Br itt a

Y 1 2 3
FIGURE 1 FIGURE 12
M ap of carbon taxes and E T S s 16 Map of n ati o n al and s u b n ati o n al crediti ng m e c h a n i s m s 3 9
FIGURE 2 FIGURE 13A

Share o f glo bal G H G e mi s s io n s covered by carbon pricing Ty pe and use of inter n al carbon p r ic in g 4 2
in st r u m e nts 17
FIGURE 13B
FIGURE 3 Uptake of i nte r n al carbon p r i ci n g 43
Absolute emissions coverage, share of em i s s io n s covered, and prices
for C P Is across jur isdicti on s 19 FIGURE 14
Prices of stan dard ized carbon credit contracts 43
FIGURE 4
P r i ce evoluti on in select E T Ss from 2 0 08 to 2021 21 FIGURE 15
Multi layered pu rch aser d ecision s shape diverse ma r kets
FIGURE 5 and prices 4 5
Record h i gh carbon tax rates in s ix jur isd icti on s 23
FIGURE 16
FIGURE 6 Credits issued, registered acti viti es, average 2 0 2 0 price,
Car b on prices as of A p r il 1, 2 0 22 2 6 and sectors covered by crediti ng m e c h a n i s m s 66
FIGURE 7
Revenue generated p er carbon p r i ci ng i n s tr u m e nt in 2021 27
FIGURE 8
Evo lu ti on of glo bal carbon p r ic ing revenues over ti me 27
figures
FIGURE 9
List of
Gl o b al vo l u me of is s u an c es by cred iti ng m e c h a n i sm category 34
FIGURE 10
Stylized representati on of types of carbon cred iti n g
m e c h a n i s ms and m a r ket s e g me nts 36
FIGURE 11
Cred it iss uance a n d n u mb er of projects i n 2021, by category of
m e c h a n i s m s 37

Y 1 2 3
BOX 1 TABLE B1
Direct carbon p r i ci ng i n str u m en ts 13 Car bo n p r ic in g develo pments i n selected Can ad i an
provinces and territories 5 6
BOX 2
Rev is io n s to glo bal G H G coverage esti mates i n th i s TABLE B2
ye ar ’s report 18 D e velo p me nts in C h i n a ’s su b n ati o n al pilots 57
BOX 3
T he role of the fi n an ci al sector in e m is s i o ns trad in g 24
BOX 4
T he E U ’s proposed Carb on Border A d ju stme nt M e c h a n i s m 2 9
BOX 5
A r ti c le 6 ru les on l i n k i ng e mi s s io ns tra d ing syste ms 31
BOX 6
Just tran siti on in the E U ’s climate p olicy 32
boxes and
BOX 7
U n d erstan d i ng carbon credit m ar ke ts 35
BOX 8
Internal carbon p r ic in g 42
BOX 9
What is tokenizati on? 4 7
List of
BOX 10
tables
T h e fi n alized Arti cle 6 Rulebo ok provides ro o m for

fl exib ility in voluntary trans acti on s 48
BOX 11
Arti cle 6 activities 50

Y 1 2 3
BC B r i ti s h C o l u mb ia MRV M o n ito r in g , rep or ti ng , a n d verifi cati on
BCA Border car bon adjustment MSR Market stability reserve
CAD Ca na d ian do llar MtCO 2 M illi o n m etr ic ton s of carbon d ioxid e
CBAM Car bo n Border A d j u stm ent M e c h a n i s m NbS N atu r e -b as e d solu ti on
CCM Cost c o ntai n ment m e c h a n i s m NDC N ati o n ally determined co ntr ibuti o n
CCR Cost c o ntai n ment reserve nEHS N ati o n al E m i s s i o n s Tra d i n g Sc h e me ( G e r m a ny )
CDM Clean Develo pment M e c h a n i s m NOK N o r weg ia n kro ne
CHF S wi s s f ran c NZD N ew Zeal an d do llar
CNY Chinese y u a n OBPS Ou tp u t- b as ed p r ic in g syste m ( Ca n a d a )
CO 2 Car bo n d ioxide OECD Organ is ati o n for Ec o n o m i c C o - o p erati o n an d
COP Conference of the Parti es De velo pment
CO P 2 6 2021 United N ati o ns Climate Ch an g e Conference ( 2 6 t h PMI Par tne rs h ip for Mar ket I m p le m en tati o n
Conference of the Par ti es) REDD+ Re d u c in g E m i s s i o n s f ro m Deforestati on an d Forest
abbreviations
COP27 2 0 22 United N ati o ns Climate Ch an g e Conference (2 7th De gradati on
Conference of the Par ti es) RGGI Regio na l Greenhouse G as I niti ati ve
CO R S I A Car bo n Off setti ng an d Redu cti on Sc h e me for SBTi Sc i e n c e - B a s e d Targ et s In iti ati ve
Intern ati o nal Av iati on SDG Sustainab le D evelo pment Goal
CPI Car bo n p r i cin g in st r u m e nt SGD Si n gap o re d ollar
EDGAR E m i s s i o n s Database for Global Atmo s p h e r ic Research SLCCS Sr i L a n k a Carb o n Cre d iti n g Sch em e
E I Te E m i s s i o n s - i n t e n s i v e trade exposed TCI-P Tran s p o r tati o n an d C limate Initi ati ve P ro g ra m
EPE E m p re s a de Pes qu is a En ergéti ca ( E n e rg y Research tCO 2 Metric ton s of carbon d ioxide
Corporati on, B r a z i l ) tCO2e Metric ton s of carbon dioxid e equivalent
ETS E m i s s i o n s trad i n g system TEPA Ta i w a n E nv i ro n m e nta l Protecti on A d m in i strati o n
EU E u ro p ean U n i o n UAH U k rai n i an h r y n i a
EUR E u ro UK United K i n g d o m
G7 Group of Seven UKA United K i n g d o m Allowance
G20 Group of 2 0 UN United N ati o n s
GBP B r i ti s h p o u n d UNFCCC United N ati o n s Fra m e wo r k Co nventi o n o n C limate
List of
GHG Greenhouse ga s Ch a n ge
GtCO 2 G igato n s (a b illion metr i c to n s ) of carbon d ioxid e US United States
HFLD H i g h Fo rest L o w Deforestati on USD United States d ollar
ICAO Intern ati o nal C iv i l Aviati o n Organ i zati o n UYU U r u gu aya n peso
ICP I nte r n a l carbon price VCMI Vo lu nta r y Car bo n M arkets I ntegr ity I niti ati ve
IMF Intern ati o nal M on etar y F u n d VCS Verifi ed Carb on Stan d ard
IPCC I nte rgove r n me ntal Pan el o n Clim ate Ch an g e W TO Wor ld Trad e Organ izati o n
ITMO I nte r n ati o n a lly transferred mi ti gati o n outcome ZAR So u th A fr ic an ra n d
JCM Joint Cred i ti n g M e c h a n i s m
KC U Ko r e an Credit U n it
KO C Ko r e an Off set Credit
LPG Liqu efi ed petroleum ga s

Y 1 2 3
Table of
contents FOREWORD
EXECUTIVE SUMMARY
CHAPTER 1:
INTRODUCTION
CHAPTER 2: CARBON TAXES AND EMISSIONS TRADING

SYSTEMS
CHAPTER 3: CARBON
CREDITING
ANNEX A: METHODOLOGIES AND

SOURCES
ANNEX B: CARBON TAX AND ETS

UPDATES
ANNEX C: CREDITING MECHANISM UPDATES

Y 1 2 3
T h e climate c r is is co nti nu es to escalate a m i d a pro lo nged fi nances, aid p a n d e m ic recovery, or s up por t vulnerable sectors
p an d em ic, in c reas in g eco no mic instab ility an d geopoliti cal a n d c o mm u n iti es to adapt to climate im p a cts an d achieve just
tensions. C o m m i t m e n t s ma d e at the 2021 United N ati o n s Cl imate transiti ons.
Ch a n g e Conference ( CO P 2 6 ) keep hope alive that avo id in g the
worst eff ects of climate c h an ge is w i th i n our reach, but the peril D u r i n g th is year, c ro s s - b o rd e r approaches for carbon p r i c in g
re ma in s stark. T h e latest wo r k f ro m the I nte rg over n mental an d inter nati on al cooperati on have ma d e si gn ifi cant strides
Pan el o n Climate C h an ge m a ke s p la in that we m u s t arrest r i s i n g forward. T h e E u ro p ea n U n io n move d closer to adopti ng its Carb o n
em is s io n s n ow to ward off climate danger. Meeti ng th is challen ge Border A d j u stme nt M e c h a n i s m ( C BA M ) , wh ile Can ad a an d other
i n un cer tain ti m es calls for am bi ti o u s , just, an d co mp reh e n s ive jur isdicti on s reaffi r med their c o m m i t m e n t s to investi gate border
acti on by po licymakers . I n th is regard, car bon p r i ci n g , w i th i n a n carbon a d ju stm ents ( B C A s ) an d b r i n g d o wn hither to d au n ti n g
integrated po licy m i x , is one of the m o s t powerful tools available techn ical a n d politi cal barriers to s u c h reforms. T h e CO P 2 6
for g u i d i n g eco nomies toward l o w - e m i s s i o n paths. To m a x i m i ze agreements o n n ew r ules for intern ati o nal carbon m a r kets wi ll
the benefi ts, carbon price s ign al s m u s t be su stained, strengthened, h elp pave the w ay for m o re c ro s s - c o u n t r y collaborati ons an d
an d extended to a greater porti on of global em is s i o n s , t h r e e - trade.
quar ters of w h i c h are cur rently u nto uched by carbon p r i c in g
in str uments . However, recent eco nomic instab ility, volati le E n c o u ra g i n gl y, mo re countries conti nue to explore o pti on s to
energy mar kets , a n d r i s i n g energy prices exacerbate the politi cal introduce a carbon price, i n cl u d in g l o w - an d m i d d l e - i n c o m e
ch allenges for po licymakers . countries. T h e Wor ld B a n k i s gear in g u p to meet th is increased
d e m an d f ro m client countries for techn ical su pp or t o n carbon
T h e Wor ld B a n k ’s an n u al report o n the State an d Tr e n d s of p r i c i n g — a n d is h el p i n g countries m a i n st r e a m it into wid er fi s cal
Carb on P r i c i n g co nti nu es to provide a trusted glob al s n aps h o t p olicy an d l o n g - t e r m decar b onizati on strategies. T h i s in clu des
of carbon p r i cin g develop ments f ro m year to year. T h e past year d evelop ing a d vi s or y services, analyti cs, in n ovati o n , a n d h o sti n g
h as seen s o me positi ve s i g n s , p arti cularly i n relati on to h igh e r initi ati ves s u ch as the Par tn ersh i p for Market I m p l em e ntati o n
Foreword
carbon prices, increased revenues, an d the adopti on of n ew r ules ( P M I ) . T h e P M I wi ll provide techn ical assistance to at least 30
for intern ati o nal carbon m ar ke ts (u n d e r Arti cle 6 of the Pa r i s countries i n develop in g an d i m p l e m e n ti n g do mesti c carbon p r i ci n g
Agreement). H owe ve r, as i n p rev io us years, progress h a s been an d o p e rati o n ali zi n g Arti cle 6 of the Par is Agreement.
far f ro m adequate. A s of A p r i l 1, 20 22, o n l y four n ew carbon
p r i ci n g in str u m en ts h ad been imp l eme nte d i n the past year an d T h e Wor ld B a n k G ro u p ’s Clim ate Ch a n g e A cti o n P l a n ( 2 0 2 1 - 2 0 2 5 )
despite r e c o rd - h i g h prices i n s o m e ju r is dicti o ns , the price i n m o st co mm itt e d to increase the Wor ld B a n k ’s climate fi nance target,
ju risd icti o ns re ma in s well below the levels required to deliver o n a li gn fi n a n c in g fl ows wit h the go als of the Par is Agreement, a n d
the Pa r is Agreement temperature goals. achieve results that integrate climate an d development. T h ro u g h
th is A cti o n P l an , the Wor ld B a n k Group is well positi oned to
I n 2021, h i gh e r carbon prices, revenue f ro m n ew i n str u me nts , an d leverage its co nven in g power, kn owledge an d research, an d
increased au cti on in g i n e mi s s i o n s trad in g syste m s resulted i n a co u ntr y p ro g ra m sup po r t to help countries m a ke info r med climate
record U S D 8 4 b illio n of glo bal carbon p r i ci n g revenue, a ro u nd d ecision s, in c lu d i n g o n carbon pr icing.
6 0 % h i gh e r th an i n 2020. Su c h a n imp re s s ive increase h i gh l i gh t s
carbon p r i c i n g ’s b u rgeo n in g potenti al to reshape incenti ves an d
i nvestme nt toward deep decar bonizati on. Fu r th e r, it illustrates BERNICE VAN BRONKHORST
carbon p r i c i n g ’s potenti al role as a broader fi scal tool to contribute Clim ate C h an ge Global Director, Wor ld B a n k G ro u p
toward broader p olicy objecti ves, s u c h as to restore depleted p ub lic

Y 1 2 3
CARBON PRICING CAN PROVIDE DIRECT CARBON PRICING CONTINUES
THE IMPETUS FOR ECONOMIC TO BE ADOPTED BUT GLOBAL
Executive summary TRANSFORMATION AND

RECOVERY
• More ambitious carbon prices can help close the gap between
pledges and policy and “keep 1.5 alive.”
COVERAGE REMAINS LOW
• Worldwide, 6 8 carbon pricing instruments (CPIs), including taxes

and emissions trading systems (ETSs), are operating and three
more are scheduled for implementation.
• Along with lowering emissions, carbon pricing can improve energy
and industrial efficiency, limit reliance on imported energy, • CPIs in operation cover approximately 2 3 % of total global
promote cleaner air, protect and regenerate landscapes, and greenhouse gas (GHG) emissions. This represents a small
provide a valuable source of government revenue. increase in total global coverage as a result of four new systems
commencing in the past year.
• But adopting carbon prices remains politically challenging,
particularly amid rising inflation and energy prices. There is a • The International Maritime Organization is considering placing
clear need to ensure policies are fair, effective, and embedded a price on emissions from international shipping activities. If
within integrated climate and social policies. adopted, this would represent a major step in tackling global GHG
emissions.
CARBON PRICES HAVE HIT RECORD CARBON REVENUES HAVE

HIGHS IN MANY JURISDICTIONS INCREASED SHARPLY
• Record ETS prices were observed in the European Union (EU), • Global carbon pricing revenue increased by almost 6 0 % in the
California, New Zealand, and Republic of Korea, among other past year, to around USD 8 4 billion.
markets, while several carbon taxes also saw prices hit their
highest levels yet. • With prices rising and reduced free allocation, ETS revenues
surpassed carbon tax revenues for the first time.
• A combination of policy reforms, anticipated changes, speculative
investment interest, and broader economic trends, especially in • Increasing carbon pricing revenues can support sustainable
global energy commodity markets, are driving these ETS price economic recovery, finance broader fiscal reforms, or help buffer
spikes. countries from economic and international turbulence.
• Nonetheless, prices must rise considerably more to meet the Paris

Agreement temperature goals, as less than 4 % of global emissions
are currently covered by a direct carbon price within the range
needed by 20 3 0 .

Y 1 2 3
CROSS-BORDER APPROACHES TO MARKETS FOR CARBON CREDITS ARE
CARBON PRICING ARE INCREASINGLY GROWING RAPIDLY
Executive summary GAINING TRACTION
• The EU moved closer to adopting its Carbon Border Adjustment

Mechanism, and Canada and the United Kingdom (UK) are
• Credits from independent crediting mechanisms clearly dominate
the carbon market.
• Annual voluntary carbon market value exceeded USD 1 billion for

exploring options for similar mechanisms.
the first time, driven by corporate commitments.
• The International Monetary Fund (IMF) and World Trade
• Compliance demand for carbon credits remains limited, though
Organization (WTO) are advocating for an international carbon
pricing floor. new rules for international carbon markets under Article 6 of the
Paris Agreement provide clarity that may enable future growth.
• Some countries have moved toward the adoption of international
climate clubs, including the proposed United States (US)-EU
Carbon-Based Sectoral Arrangement on Steel and Aluminum Trade.
• These approaches can fortify domestic support, prevent carbon

leakage, and encourage mitigation beyond national borders.
DIVERSE PURCHASER PREFERENCES NEW FINANCIAL SERVICES,

MAKE MARKET GROWTH UNEVEN TECHNOLOGIES, AND GOVERNANCE
FRAMEWORKS ARE SHAPING CARBON
MARKETS
• Nature-based credits are in especially high demand: Forestry and
land use transactions more than doubled between 2 0 2 0 and 2021.
• Financial actors are becoming more active in the carbon market,
while blockchain has enabled a new wave of decentralized
• Increasing demand for carbon removals has resulted in price
financial innovations that show the technology’s potential but
increases for these credits.
have reignited some long-standing concerns about transparency
and quality.
• The voluntary carbon market continues to be strongly diverse,
with purchasers placing widely different values on characteristics
• Diverse governance frameworks are emerging from stakeholders
such as sector, geography, and perceived co-ben efit s.
and institutions that aim to address concerns regarding the
integrity of carbon credits and how companies use th em.
• New rules on Article 6 increase certainty while also adding

complexity to carbon credit markets and may lead to increasingly
divergent approaches emerging across actors and geographies.

Y 1 2 3
Chapter 1 1.1 DRIVING TRANSFORMATION AND SHAPING ECONOMIC
RECOVERY
Introduction T h e past year h a s seen eff orts to tackle the climate cr is is gath er steam, as its eff ects
become mo re severe an d the challen ge it presents move s closer to the top of politi cal
agendas.
T h e I ntergover n mental Panel o n Clim ate C h an g e ’s latest report, its S i x t h A s s es s ment

Report, painted a sta r k picture of the i mp ac ts already being felt, i n c lu d in g lo ss of
life, h u ma n ita r i an crises, an d irreversible d a mage to ecosystems. 1 I t h ig h l ight ed
the im p a ct of every additi onal in cre ment of global w a r m i n g , s u ch as the m a jo r
diff erence between restricti ng the temperature rise to 1.5°C instead of 2°C. A cco rd i n g
to the report, glo bal e m is s i o n s wo u ld need to fall by 4 3 % by 2 0 30 i n order to l i m i t
temperatures r i s i n g to 1.5°C. 2 T h i s wo u ld require rap id e m is s i o n s reducti ons acro ss all
econ omic sectors. D espite th is , e mi s s i o n s conti n ued to r ise i n the decade u p to 2019.
I n late 2021, wo r ld leaders met i n G la s gow for wh at was billed as the m o st imp o r ta nt
climate conference since the Par is Agreement was adopted i n 2015. T h e conference
achieved sig n ifi cant ou tcomes, in c l u d i n g agreements to phase d own coal power an d
remove ineffi cient fo ssil fuel su bs id ies, as well as fi n a l i zi n g rules o n intern ati o nal
carbon markets. Coaliti o ns of countries an no un ced greater acti on o n forests,
meth an e, an d climate fi nance. Nevertheless, c o mb in e d n ati o n all y determined
co ntr ib uti o ns ( N D C s ) as they stand today wou ld, if f u l ly imp l eme nte d , sti ll lead to
2.4°C of wa r m i n g , 3 a n d the G la s gow Pact called o n countries to update their targets
by the 27th sessio n of the Conference of the Parti es to the United N ati o n s F ra m e w o r k
Co nventi o n o n Climate Ch an g e ( U N F C C C ) , i due to take place i n N ove mb er 2022. A n
a n a lys i s of N D C s , l o n g e r- t e r m net zero targets, a n d glo bal initi ati ves s u ch as the
Global Methane Pledge painted a s l ig htly m o re positi ve picture in d ic ati n g they wo u ld ,
if imp le mente d i n f ul l an d o n ti me, am o u nt to 1.8°C of w a r m i n g , b r i n g i n g th em closer
to G l as g ow ’s goal of “ ke e p i n g 1.5 [degrees] alive.” 4
Wh ile in cre as in g the amb i ti o n of N D C s an d net zero pledges is a key part of the
picture, d eliver in g o n th em is even m o re crucial. A n al ys is by the Inter n ati on al E n e rg y
A g en cy indicates a s ign i fi c ant gap between wh at countries have pledged an d wh at
ex isti n g policies ca n achieve. 5 T h e I nte rgove r n me ntal Pan el o n Cl imate C h an g e ’s
latest report s i m i l a r l y c o nfi r m s that m a n y countries wo u ld need additi onal policies
to meet their own N D C targets. 6 A n d wh ile em i s s io n s briefl y decreased d u r i n g the
C OV I D - 1 9 p an d e mic , en ergy d em an d h as bounced b ack to p r e - p a n d e m i c levels an d
glo bal e n e rg y- re l ate d e mi s s i o n s rose to a record h i g h i n 2021. 7
i The 2022 United Nations Climate Change Conference, more commonly referred to as COP27.

Y 1 2 3
T h e cu rrent state of carbon p r i c in g clearly refl ects the gap between policies a n d 1.2 WHAT IS CARBON PRICING?
pledges. Wh ile carbon prices reached record h i g h s acros s a n u mb e r of E T S s an d
carbon taxes over the past year, the maj o r ity of carbon prices r em a in s i gn i fi c antl y Carb on p r i ci n g is a cost-eff ecti ve po licy tool that gove r n m ents ca n use as part of
below wh at i s needed to achieve net zero by 2 0 50 an d meet the go als of the Pa r i s their broader climate strategy. 8 A price is placed o n greenhouse ga s em is s io n s , w h i c h
Agreement. i i Greater carbon p r i ci n g am b iti o n ca n p lay a cr ucial role i n c lo s i n g the creates a fi n an cial incenti ve to reduce those e mi s s i o n s or enhance removals. B y
po licy ga p wh e n part of a comprehen sive climate p olicy package a n d grou nd ed i n in co r p o rati n g climate ch an ge costs into eco nomic d e c i s i o n - m a k i n g , carbon p r i ci n g
robust l o n g - t e r m strategies. A n in c reas in g interest i n c ro s s - b o rd e r carbon p r i cin g can h elp encourage ch an ge s i n produ cti o n , c o n s u mp ti o n , an d inve stme nt patt erns,
policies refl ects att empts to realize s u ch a mb iti o n wh ile ad d res s in g co ncern s related thereby u n d e r p i n n in g l o w- c a r b o n growth. 9
to eco no mic competi ti veness an d carbon leakage.
C P I s are aime d at ad d res s in g price barriers to l o w- c a r b o n development, but these are
A d o pti n g amb iti o us carbon prices re ma in s p oliti cally ch al le n gi n g , parti cu lar ly i n the oft en not the o n l y type of barrier that sh o u ld be addressed for eff ecti ve climate policy.
context of r i s i n g en ergy c o m m o d i t y prices an d co nti nu ed pressure o n econo mies A s s u c h , C P I s ty p ic ally need to be complemented an d enh an ced by other types of
f ro m the o n go in g C OV I D - 1 9 pandemic. De velo p i n g an d m a i nta i n i n g carbon p r i cin g policies that address a broader set of climate ch an ge challen ges an d ma r ke t failures.
approaches i n th i s context requires a stro n g em p h a s i s o n en s u r in g carbon p r i ci n g is T h e s e m ay in clud e research a n d development, se cto r-s p ec ifi c regu lati on s, inve stm ent
fair, in clu sive, an d well co mmunicated . At the s a m e ti me, h i g h energy c o m m o d i t y i n technologies a n d infrastr uctu re, rem oval of regulator y barriers, an d ma r ke t
prices coupled wit h cu rrent geopoliti cal ten sion s m ay also provide an ad diti on al re fo r ms to enable in ce nti ve- b a s e d approaches. A dditi o nal meas ures m ay also be
incenti ve for g ove r n m ent s to speed u p their trans iti o n to alternati ve energy needed to miti gate u nwa nt ed eff ects of climate policies o n specifi c sectors or gro u ps
sources. Moreover, recent research h i g h l i g ht s that env iro n me ntal taxes c an be less i n society.
disto rti onar y th an other taxes, par ti cu lar ly i n ti me s of eco no mic recovery. i i i
G ove r n me nts can price carbon u s i n g a var iety of p o licy i n str u me nt s , w h i c h can all
T h e private sector, me a nw h il e , h a s seen a s h a r p rise i n vo lu nta r y m iti gati o n be tailored to do mesti c circu mstan ce s , prior iti es, a n d needs. T h e climate im p a ct of
targets, m a n y of w h i c h rely to at least s o me extent o n u s i n g carbon credits. T h i s carbon p r i ci n g depends o n h ow bro adly the price i s applied, the price level, a n d the
h a s contributed to record issu an ces , trades, an d prices, th o u g h it h a s also triggered availability of abatement opportuniti es. E c o n o m y - w i d e carbon p r i cin g policies are
increased scruti ny. A g row i n g n u mb e r of initi ati ves are e me rg in g to assess am bi ti o n m o re eff ecti ve th an carbon prices restricted to certain sectors or goo ds an d h i gh e r
i n vo lu ntar y pledges an d carbon credit quality. I n additi on, inter nati on al carbon carbon prices in c enti v ize greater em is s i o n reducti ons. i v Creati ng a credible an d m o re
mar ket rules set at CO P 2 6 provide fl exib ility to countries to author ize inter nati on al predictable price s i gn a l over the lo nger ter m wi ll su pp or t l o n g - t e r m i nvestme nts an d
transfers of credits f ro m vo l u ntar y carbon projects. H o st countries that opt to require in centi v ize l o w- c a r b o n development.
s u c h a u th o r izati o n wi ll i n tu r n ap p ly a co r re s p o n d in g ad justment for s u ch tran sfers,
w h i c h m u s t be refl ected i n their N D C rep or ti n g em is s i o n s balance. Th es e factors are
like ly to lead to in creas in g heterogeneity i n the vo lu nta r y carbon m ar ke t as b uyers
place diff erent values o n h ost co u ntr y a u th or izati o n as well as credit quality. T h e
adopti on of inter nati on al carbon tra d in g r ules also provides a f ra me wo r k for greater
intergove r n me ntal carbon trad in g , al th o u gh the potenti al d e m an d for s u c h trad in g is
uncertain.
ii. The Report of the H i g h - L e v e l C o m m i ss i o n o n Carbon Prices indicates that the carbon price needs to b e in the USD 50-100/t CO 2 e range by 2030 to keep global heating to 2°C.
iii. World Bank research in 75 countries indicates that, on the whole, higher environmental taxes do not lead to reduced employment in times of economic recovery, though they may have some impact in times of
recession. This is in contrast to personal income tax increases, which have b een shown to reduce employment during both recessions and recoveries. World Bank (April, 2021). Regime-Dependent Environmental
Tax Multipliers: Evidence from 75 Countries.
iv. Consumer responses require market frameworks that allow carbon costs to b e passed through the supply chain or the inclusion of CPI design adjustments to improve the operation of a carbon price
under regulated market settings. Further, other policies and investments (for example, public transport infrastructure) are often also needed improve the ability of consumers to respond to higher prices by
switching to lower-emission alternatives.

Y 1 2 3
Car b on p r i c in g i n str u m en ts c an broadly be gro up ed into two categories: direct an d
BOX 1 indirect carbon p ricin g.
Direct carbon pricing instruments Direct carbon p r ic in g (Box 1) refers to C P I s that a p p ly a price incenti ve directly
A carbon tax is a po licy in str u me nt th ro u gh wh i c h a gove r n me nt levies a proporti onal to the greenhouse ga s e m is s i o n s generated by a gi ven product or
fee o n G H G e m is s i o n s , p rov i d i n g a fi n an ci al incenti ve to lower emission s. acti vity, p r i m a r i l y th ro u gh a carbon tax or an E T S . B y ap p l y in g the s am e price per
Und er a carbon tax, the price of carbon i s set by the gover n me nt, an d the m etr ic ton of carbon d ioxide (CO 2 ) acro ss mu l ti p le sources, direct carbon p r i ci n g
mar ket d eter mines the level of e mi s s i o n reducti ons in c enti v ize d by the ensures that abatement incenti ves are consistent an d cost-eff ecti ve. v Carb on crediti ng
price. m e c h a n i s m s are another fo r m of carbon p r ic in g , an d are includ ed i n the scope of
th is report, but operate diff erently f ro m E T S s an d carbon taxes. Par ti cipati on i n
A n emissions trading system invo lves p la ci n g a l i m i t or cap o n the total cred iti n g m e c h a n i s m s i s gen erally vo lu nta r y, an d u n li ke carbon taxes an d E T S s , these
vo lu me of G H G e mi s s i o n s i n one or m o re sectors of the economy. A m e c h a n i s m s do not i n th emselves create a b ro a d - b a s e d carbon price. Instead , they
gove r n me nt then aucti on s or distributes tradable e m is s i o n allowan ces to off er a s u bs id y to em is s i o n s abatement a m o n g selected eligible acti viti es. Cred i ti n g
enti ti es covered by the cap, where each allowance represents the r i ght to m e c h a n i s m s fu n cti o n i n concert w ith initi ati ves that create d e m an d for e m i s s i o n -
emi t a certain vo l u m e of em is s i o n s ( ty p ic ally a m etr ic ton of carbon d ioxid e re d u cin g acti viti es at either the d omesti c or the intern ati o nal level. v i
equivalent), an d the total vo l u m e of allowances equals the em is s io n s cap.
Covered enti ti es are required to su r rend er allowan ces for their e m is s i o n s Ind irect carbon p r ic in g refers to i n str u me nts that c h an ge the price of p ro ducts
d u r i n g a co mp l ian ce period. T h e y can choose to b u y additi onal allowances associated wi th carbon e mi s s i o n s i n ways that are not directly proporti onal to those
if necessar y or sell s u r p l u s allowances. T h i s po licy type is also k n o w n as a emiss io ns . T h e s e i n str u me nts provide a carbon price s ign al , even t h o u g h they are
“c a p - a n d - t r a d e ” system. oft en ( p r i m a r i l y ) adopted for other s ocioecono mic objecti ves, s u c h as ra is i n g revenues
or ad d res s in g air polluti on. 1 0 E x a m p l e s of indirect carbon p r i cin g in clu de fuel an d
Alter nati vely, an E T S m ay use a “ b a s e l i n e - a n d - c r e d i t ” syste m, where there c o m m o d i t y taxes, as well as fuel su bsid ies aff ecti ng energy con sumers. Fo r exam p le,
is n o fi xed l i m i t o n total e m is s i o n s per sector, but covered enti ti es can fuel excise taxes that ap p l y a fl at tax am o u nt to gasolin e by the liter in directly place
“e a r n ” e m is s i o n credits if they produce fewer e m is s i o n s th an the baseline. a price o n the carbon em is s io n s f ro m the co mb u sti o n of that gasoline. Invers ely,
Th es e credits can then be traded wi th covered enti ti es that need ad diti on al fuel su bsid ies that reduce the price of fos sil fuels create a “ n e ga ti v e ” indirect carbon
credits to cover their s u r p l u s em is s io n s relati ve to the baseline. E x a m p l e s price s i gn al , w h i c h in c enti v ize s h i gh e r c o n s u mp ti o n a n d therefore increases carbon
of these syste ms includ e inten sity stan dards an d tradable per fo rmance emiss io ns . A l l p olicy in str u me nts that focus o n the price incenti ve for u s i n g fuels
standards. an d co mmo d iti es c an be considered indirect carbon prices. Howe ve r, regulati o ns an d
investm ent i n c e n ti ve s — w h i c h m ay address n o n - p r i c e related m ar ke t failures but do
I n an E T S , the price of carbon is not fi xed by a g over n m e nt but determined not translate into a price eq u ival ent— are not considered indirect carbon pricing. v i i
by the s u p p l y an d d e m an d of e mi s s i o n allowances or credits.
Carbon crediting mechanism refers to a syste m where tradable credits

v. A number of jurisdictions, including in Argentina, Mexico, and most recently Uruguay, have
(ty p ic ally representi ng a metr i c ton of carbon d ioxide equivalent) are introduced carbon taxes but these instruments have b een implemented with varying tax rates
generated th ro u gh vo l u ntar ily imp l eme nte d e m is s i o n reducti on or re moval (per metric ton CO2) across fuels. Therefore, while these policies are called “carbon taxes” and
have b een historically included within the State and Trends Reports, they meet the definition for
acti viti es. Carb on crediti ng m e c h a n i s m s operate diff erently to carbon taxes
indirect taxes and provide incentives akin to traditional fuel taxes.
an d E T S s — r a t h e r th an re q u ir i ng bu sinesse s to p ay for e mi tti n g (i.e., the vi. For instance, crediting mechanisms can provide additional flexibility to ETSs and taxes by
polluter p ays p r in c ip le) , bu siness es a n d other o rga n izati o n s ca n generate expanding mitigation options for those regions and/or sectors covered directly.
vii Other policy instruments and investments (for example, public transport, power transmission
carbon credits ( a n d hence revenue) by d em on strati n g that em i s s io n s have
infrastructure) are crucial to complement carbon pricing and to further enable consumers to
been reduced or sequestered relati ve to a counterfactual baseline. respond to higher prices by switching to lower-emission alternatives. These policies directly and
indirectly lead to emission reductions and decarbonization. However, classifying the instruments
primarily aimed at addressing other aspects of climate action as indirect carbon pricing would
blur important distinctions that are essential for designing smart policy mixes. Accordingly,
indirect carbon pricing is assumed to b e limited to those instruments which advance the original
purpose of carbon pricing (i.e., addressing pricing market failures).

Y 1 2 3
T h e State an d Tre n d s of Carb on P r i c i n g report h as traditi on ally focused o n direct stru ctural re fo r m s a n d p ublic investments , are not easily translated into carbon price
carbon p r ic in g a n d the 2 0 22 editi on conti n ues th is approach. However, indirect equivalents. Carb on price ind icato rs measu re p ro gress o n the price element of climate
carbon p r ic in g also infl uences produ cti o n, c o n s u mp ti o n , a n d investment decisions. acti on an d s h o u ld not be m is co n str u ed as an ind icator of overall climate ambiti on.
T h u s it is valuable to consider both direct a n d indirect p r i cin g in str u m e nts to
bett er u nderstan d the progress toward refl ecti ng the social costs of greenhouse ga s
em is s i o n s i n m ar ket prices. Direct an d indirect carbon prices interact glo b al ly an d i n
specifi c jurisdicti ons. T h i s m e an s , for examp le , the price s ign al provided by a direct
carbon price wo u ld be diluted if it were off set by an eff ecti ve decrease to indirect
carbon p r ic in g , s u c h as th ro u gh the intro d ucti o n of a s u bs id y that reduced fuel prices.
A n integrated view of a co u ntr y ’s direct an d indirect C P I s wi ll allow p o li cy m akers
to assess the landscape of in centi ves a n d wh at n ew in st r u m e nts m i g h t wo r k to
achieve v ital climate ch an g e goals. Several insti tuti o ns, i n c lu d in g the Wor ld B a n k , are
ex p l o r i n g avenues to present m o re data o n indirect p r i c in g an d give bett er vi s ib ilit y of
h ow diff erent p r i c in g in centi ves ap p ly an d interact i n c o m i n g years.
Direct carbon p r i cin g syste ms ( th ro u gh carbon taxes an d E T S s ) have, to date, la rg ely

been concentrated i n h i g h - an d m i d d l e - i n c o m e countries. In direct carbon p r i cin g
syste m s , s u ch as fuel excise syste ms , are m o re c o m m o n l y imp le me nte d th an direct
carbon p r ic in g , in c lu d i n g i n m a n y d evelo ping countries. T h u s , m e a s u r i n g indirect
carbon prices is p arti cularly use fu l for u n d e rstan d in g the state of p lay an d pro gress
i n m a n y d evelo ping countries. I n A fr ica, for examp le , s o me countries have achieved
maj o r increases i n indirect carbon prices th ro u gh fuel tax an d s u bs id y reforms.
Agreement wa s reached at CO P 2 6 to phase d own ineffi cient fos sil fuel subsidies. T h i s
is a s ign ifi c ant mileston e a n d it is the fi rst ti me s u c h an approach h a s been in clu ded
i n a glob al agreement. A cti o ns to w i n d d own negati ve indirect carbon p r i c in g co uld
potenti ally be seen as early steps toward re ach i n g a glo bal carbon p r i ci n g agreement.
P ub l ic offi cials are oft en cauti ous about i m p l e m e nti n g direct carbon p r i ci n g if
their co u ntr y h a s never h ad s u c h measures. I t c an feel n e w an d co mp lex. B u t m o s t
countries already have decades of experience with intro d u cin g fuel excise taxes a n d
p h a s i n g out s ubs id ies o n fuels an d co mm od i ti es a n d are fa mi li ar wi th the d e si gn ,
ad min i strati o n , an d challenges of s u c h reforms. M eas u r i n g the indirect carbon price
f ro m these syst em s c an p ro mo te fa mi li ar ity wi th the concept of carbon p r i ci n g an d
can h elp p o licy m akers bett er un derstan d the potenti al i mp ac ts f ro m i ntro d u c in g a
direct carbon price.
Eve n c ro s s - c o u n t r y c o m p a r i s o n s of overall or “e ff ecti ve ” carbon prices that in clu de

both direct a n d indirect p r i cin g tools do not provide perfect i n s i g h t into relati ve
climate eff ort or a mb iti o n levels. Other d im e n s i o n s of climate acti on, s u c h as

Y 1 2 3
Chapter 2 Following years of limited growth, carbon prices rose quickly in 2021. Prices in
carbon taxes and ETSs alike hit record levels across multiple jurisdictions, driven by
Carbon
more ambitious climate policies, as well as broader economic factors such as global
energy commodity prices. The rapid rise in ETS carbon prices, in conjunction with the
operation of new ETSs, has seen ETS revenue surge, surpassing carbon tax revenue
taxes and
for the first time. However, prices in most jurisdictions remain below what is needed
to meet the goals of the Paris Agreement and “keep 1.5 [degrees] alive.” With few new
instruments or sector expansions this year, the global coverage of carbon pricing
increased only marginally in the year leading up to April 2 0 2 2 , following major
changes in the previous two years. Meanwhile, jurisdictions are increasingly looking
toward cross-border policies and initiatives that enable higher carbon prices while
ensuring the continued competitiveness of their economies.
emissions 2.1 ADOPTION OF DIRECT CARBON PRICING CONTINUES BUT

GLOBAL COVERAGE REMAINS LOW
trading T h e past year saw fewer changes i n the volume of global emissions covered by direct carbon
prices than previous years and a greater focus by major emitt ers on consolidati ng their
systems
existi ng instruments. However, various countries are considering new CPIs.
As of April 2 0 22 , there are 6 8 CPIs operating with three more scheduled for
implementation. T h i s includes 37 carbon taxes and 34 E T S s (see Figure 1). A new carbon tax
in U ru gu ay commenced in January 2022 and three new E T S s also commenced i n the past
year i n subnati onal jurisdicti ons in No r th America— Orego n, New Bru ns wick , and Ontario.
One U S state, Washington, as well as Indonesia and Austria, have C P I s scheduled for
implementati on. Approximately 2 3 % of total global G H G emissions are currently covered by
operati ng C P I s (see Figure 2), wh i ch is similar to global coverage in 2021 (see Box 2).
While there have only been four new CPIs implemented since last year’s State and
Trends report, more jurisdictions took steps toward implementing or expanding
carbon pricing. I n additi on to the in st r u m e nts scheduled for intro ducti o n (i.e., i n
Au str ia, I nd o n es ia, an d Wa s h i n gto n State), Israel, M alaysia, an d Bo ts wa n a an n o u nc ed
their intenti on s to develop n ew C P I s an d Vie tn am outlined steps to set u p a n E T S . A
n u mb e r of other jur isdicti on s i n A fr ica, Central E u ro pe, an d A s ia conti nue to assess the
potenti al to im p l em e nt CP I s .

Y 1 2 3
FIGURE 1
Map of carbon taxes and ETSs
Sweden
Norway
Denmark Finland
Germany
Netherlands
Belgium Estonia
UK Latvia
Canada Lithuania
Ireland
Poland
Luxembourg Ukraine
EU Liechtenstein
France
Romania
Iceland Republic of Korea Catalonia Bulgaria
Kazakhstan
Portugal
Sakhalin Spain Italy
Washington
Switzerland
Greece
Austria
Massachusetts Japan Slovenia
California
Oregon Hungar
Pennsylvania Turkey
China y
Pakistan Serbia
Baja California
Morocco Israel Montenegro
Zacatecas Tamaulipas
Hawaii Shenyang
Jalisco Thailand Vietnam Beijing
Mexico Senegal
Malaysia
Brunei Tianjin Tokyo
Colombia
Côte d’Ivoire Singapore
Hubei Saitama
Northwest Territories
Shanghai
Brazil Indonesia Chongqing
Fujian
Botswana
Taiwan, China
Shenzhen
British Columbia Chile Guangdong (except Shenzhen)
Alberta Newfoundland
and Labrador Uruguay South Africa
Saskatchewan Ontario Québec
Argentina
Manito
ba Prince Edward Island
RGGI
Nova Scotia New Zealand
TCI
New Brunswick
ETS implemented or scheduled for implementation ETS implemented or scheduled, carbon tax under consideration
Carbon tax implemented or scheduled for implementation Carbon tax implemented or scheduled, ETS under consideration
ETS and carbon tax implemented or scheduled ETS or carbon tax under consideration
Carbon pricing initiatives are considered “scheduled for implementation” once they have been formally adopted through legislation and have an official, planned
start date. Carbon pricing initiatives are considered “under consideration” if the government has announced its intention to work towards the implementation of a
carbon pricing initiative and this has been formally confirmed by official government sources. TCI refers to Transportation and Climate Initiative. RGGI refers to the
Regional Greenhouse Gas Initiative.

Y 1 2 3
FIGURE 2
Share of global GHG emissions covered by carbon pricing instruments
25% 64 68
Ontario Emissions Performance Standards (0 . 08 %)
Oregon ETS (0. 05 %)
Uruguay CO2 tax (0.01%)
20%
New Brunswick ETS (0.01%)
15%
55 58
Number of carbon pricing

Share of global GHG emissions
38 40 43 4 5
mechanisms in
operation 36
10% 31
23
9 16 19 21
5% 10 15
4 5 6 7 8
2
0%
1997
2012
2014
2018
2021
1995
2011
2016
2019
1990
2 00 3
1991
2013
2015
2017
2001
2010
1993
1992
1998
1994
1999
1996
2005
2007
2002
2020
2000
2004
2008
2006
2009
2022
Y 1 2 3
BOX 2 China hosts the world’s largest carbon market by emissions, and 2021 saw its
national ETS complete the first full compliance cycle, with a reported compliance
Revisions to global GHG coverage estimates in this rate of 9 9 . 5 % . Over 2,100 liable power stati ons parti cipated d u r i n g th is cycle,
year’s report cover in g about 4.5 b illio n m etr ic to ns of CO 2equivalent (tCO e) per ye ar — ove r 3 0 %
2
of C h i n a ’s total G H G emission s. While the prices for e mi s s i o n s allowances rem a in

Ea c h year the State an d Tr e n d s of Carb on P r i c i n g report esti mates the relati vely low co mp ared to other p r i ci n g syste ms , the c lo s in g price for the year of
proporti on of glo bal G H G e mi s s i o n s covered by a direct carbon price. T h i s 54.2 y u a n ( U S D 8.5) per metr i c ton of CO 2 (tCO 2 ) translated to a n increase of a ro u nd
esti mate is intended to help track the p rogress of uptake an d coverage of 13% over the s i x m o n t h s since tra d in g co mmenced. A total of 179 m i l l i o n tCO 2 e of
direct carbon p ricin g. I t i s u n d er pi n n ed by three m a i n co mp o n e nts : G H G allowan ces were traded i n 2021, rep resenti ng a c u mu lati ve tur n over of close to 7.7
e mi s s i o n s i n a ju risd icti on , the propor ti on of a ju r is d icti o n ’s e mi s s i o n s b illion y u a n ( U S D 1.2 billion). 1 2 While th is represents relati vely low vo lu me s for a
covered by a carbon price, a n d the potenti al overlap i n a ju r is dicti o n ma r ket the s ize of the Ch in ese E T S , it is not in s ign ifi can t g ive n the Chinese E T S i s
covered by mu lti p le CPI s . sti ll ta k in g key p h a s e - i n step s — co mp li an ce trad i n g o n ly co mm en ce d i n earnest i n
October 2021 a n d cur rently o n ly covered enti ti es (i.e., not fi n an c ial in sti tu ti o n s ) are
To p ro mo te co nsisten cy acro ss jur isdicti ons , co u ntr y G H G e m is s i o n s allowed to m a ke trades. 1 3 While the overall co mp l ian ce rate for the s ch em e is reported
are taken f ro m the E m i s s i o n s Database for Global Atmo sp h e r ic Research to be 9 9 . 5 % , there have also been im p o r tant ch allen ges , wi th the M in istr y of Ec o l o gy
( E D G A R ) (htt ps://edgar.jrc.ec.europa.eu/). T h e E D G A R database i s updated an d E nv i ro n m e nt c o nfi r m i n g several fi r m s h ad falsifi ed e mi s s io n s data. 1 4
every few years. T h e cur rent report uses the m o st recent E D G A R G H G
esti mates ( ve rsi o n 6 .0 ), w h i c h were released i n October 2021 an d refer to The largest carbon market by traded value, the EU ETS, saw record trading activity
2018 e m is s i o n values; vers io n 5.0 o n l y in clu ded u p to 2015. T h e m o s t recent and prices in both spot and futures markets. Over 15 billion e m is s i o n allowan ces
update to the E D G A R database refl ects updated method olo gies a n d revised were traded o n the Interco nti nental E xc h a n ge , the largest s eco ndar y ma r ket p latf o r m
acti vity data, i n c lu d i n g updated data f ro m the Inter nati on al E n e rg y A ge n c y for E U allowances , w ith spot prices in cre as in g a lm o st threefold over the calendar
an d the Fo o d an d Agricultu re Organizati on. 1 1 year. T h e E U Cli mate L a w entered into force i n Ju ly 2021, wh i c h set the b i n d in g n e w
E U - w i d e climate target to reduce G H G e mi s s i o n s by 5 5 % i n 20 3 0 co mp ared to 1990
T h e esti mate for the propor ti on of glob al e mi s s i o n s covered i n the State levels an d achieve net zero e m is s i o n s by 2050. T h e p ackage of measu res that h a s
an d Tr e n d s of Car bo n P r i c i n g report 2021 was 21.5%. In co r p o rati n g u p - been proposed to meet the n ew c o m m i t m e n t ( k n o w n as “ F i t for 5 5 ” ) includ es the
to - d at e E D G A R G H G e mi s s i o n values, co mb in ed wi th revision s to the additi on of a n ew, separate E T S cover ing tran sp or t an d b uildings. T h i s wo u l d exist
esti mates of covered em i s s io n s , p arti cularly for the Chin es e n ati o nal i n parallel to the ex i sti n g E U E T S , wh i c h covers the power, in d u str y, an d aviati on
E T S , have resulted i n a m i n o r recalibrati on of the coverage esti mate. sectors, th o u gh it wo u l d share s o me c o m m o n elements, s u c h as the mar ket stability
T h i s yea r ’s esti mate indicates ap p rox imate ly 2 3 % of goal e m is s i o n s are reserve ( M SR ) . T h e proposed p ackage of measu res wo u ld also extend the scope of the
covered by a C P I i n operati on. A ro u n d 0 . 2 % of the reported increase since exi sti n g E U E T S to in clu de s h i p p i n g em is s i o n s b e gi n n i n g i n 2023 an d covering 1 0 0 %
2021 occur red because of additi onal coverage f ro m the four n ew carbon of e mi s s i o n s for voyage s between m e mb e r state ports a n d 5 0 % for voyages between
p r i ci n g i n str u me nts ( i n U r u g u ay, N e w B r u n s wi c k , Ontario, a n d Oregon). E U ports an d t h i rd - c o u n t r y ports by 2026. 1 5 T h e E U legislature is cu rrently debati ng
T h e rema in d er of the increase is due to other factors, s u c h as fl uctu ati o ns these proposals; the pres id ency for the E nv i ro n m e nt Co u n c il me eti ng i n M a rch 2 0 22
i n G H G e mi s s io n esti mates, rev is io ns to G H G e m is s i o n s data, an d refi ned indicated that the proposal to includ e s h i p p i n g h as broad sup p or t but the pro po sal
coverage as s u mpti o n s i n specifi c jurisdicti ons. to in clu de tran spo rt a n d b u il d i n gs h as generated s ign i fi c ant debate a m o n g me m b er
states a n d i n the E U Parliament. 1 6

Y 1 2 3
FIGURE 3
Absolute emissions coverage, share of emissions covered, and prices for CPIs across jurisdictions
Carbon tax
ETS
14 0 Uruguay*
Carbon price USD/tCO2e
Switzerland Sweden Liechtenstein
12 0
United Kingdom
EU ETS
10 0
Norway*
Finland *
80
Switzerland
60
France New Zealand
Netherlands Ireland* Canada**

Luxembourg*
40 China National ETS Icelan d

D enm ark*
Germ any
United Kingdom
Spain Portugal Slovenia

20 RGGI
Rep. of Korea Japan
Latvia
Mexico*
Colombia Chile South Africa
Argen t ina *
Poland Ukraine Singapore
Kazakhstan
0
0% 20% 40% 60% 80%
Share of GHG emissions covered in the jurisdiction
Bubble s ize represents absolute covered total greenhouse gas emissions.
* For CPIs that have multiple price levels, the price applying to the larger share of emissions is used.
* * T h i s is a composite presentation representing total emissions covered by carbon pricing instruments under the Pan-Canadian Framework. It includes
a combination of ETS-like and carbon tax-like instruments, implemented at both provincial and federal levels.

Y 1 2 3
The International Maritime Organization is currently considering market-based h i g h s witnessed i n early 2 0 2 0 before the CO V I D - 1 9 p an d emi c, dr iven by im p roved
measures, including carbon pricing, to reduce GHG emissions from international ma r ket s e nti ment as a result of h igh e r global carbon prices an d imp rove d do mesti c
shipping. I n 2018, the Inter nati onal M ar iti me Organ izati o n co mm itt e d to halve G H G am bi ti o n set out i n the Repu blic of Ko re a’s enh an ced N D C an d the passage of a carbon
e mi s s i o n s f ro m inter nati on al s h i p p i n g relati ve to 2 0 0 8 levels by 2 0 5 0 th ro u g h a n eu trality law.
co mb in ati o n of measures. T h e cur rent focus of negoti ati ons i s m i d t e r m meas ures , for
w h i c h several m a r ke t- b a s e d measures have already been proposed, i n c lu d in g a carbon Sharp price drops were recorded in several systems in early 2 0 2 2 , though prices have
levy an d a c a p - a n d - t r a d e system. T h e carbon lev y wo u ld be applied to b u n ker fuels, since begun to recover. Pr ices i n the E U E T S , the N e w Ze alan d E T S , the U K E T S , a n d the
sta r ti n g at U S D 100/tCO 2 e f ro m 2025 wit h u pward ratchets o n a fi v e - y e a r review cycle. 17
Rep ublic of Ko re a E T S s aw d ramati c falls fo llowin g the i nvas io n of Ukraine i n Febr uar y.
T h e c a p - a n d - t r a d e system wo u l d be co mb i n ed wi th a fuel G H G li mi t, the latt er of P rices i n all four syste ms have since begun to recover but they re ma in below the h eig hts
w h i c h wo u ld act as a c o m m a n d - a n d - c o n t r o l measure. 18
I n d u st r y stakeholders, s u ch as recorded before the war.
the Inter nati on al Ch a mb er of Sh i p p i n g , s h i p p i n g ’s largest trade associati on, 1 9 a m aj o r
charterer, 2 0 an d var io us m a r i ti m e t h i n k tanks, 2 1 have expressed their s up por t for a The role of price and supply adjustment mechanisms has gained more prominence
m a r ke t- b a s e d approach an d outlined their own ideas for carbon p r i ci n g i n intern ati o n al in the context of rising prices. Wh ile Califor nia allowance aucti on prices hovered
s h ip p i n g. At COP 2 6 , the Clim ate Vulnerable F o r u m presented the D h a k a - G l a s g o w aro un d the fl oor price for years, prices began to take off i n A u gu st 2021 a n d a n
Declarati on, wi th about 5 0 d evelop ing countries ca ll in g for a m an d ato r y G H G levy o n increase i n the fl oor price was introduced i n 2022. I n Feb r ua r y 2022, the Califo r nia
b u n ke r fuels to be adopted by Intern ati o nal M ar iti me Organ izati o n me mb er states. 2 2 allowance aucti on price was sti ll 4 8 % above the n e w fl oor price. I n the N e w Ze a la n d
Potenti al carbon revenues are deemed s ign ifi cant, wi th esti mates of the total by 2 0 5 0 E T S , the price cap wa s removed i n 2021, a lo n g wit h an increase i n the fl oor price an d
b ein g between U S D 1 tr illion an d U S D 3.7 tr illio n, or U S D 4 0 - 6 0 billion an nu ally. the i mp le mentati o n of a cost c o nta in me nt reserve ( C C R ) threshold. i x T h e old an d n e w
Strategically u s i n g these carbon revenues could become key to accelerati ng s h i p p i n g ’s C C R thresho ld s were exceeded i n September 2021 2 4 an d M arch 2022, 2 5 res u l ti n g i n the
d ecar bo nizati on an d e n s u r i n g an equitable tran siti on toward ze ro - c a r b o n s h i p p i n g release of an additi onal 12.7 m i l l i o n units. U K E T S prices also reached C C R levels i n
a m o n g countries. 23
December 2021 2 6 an d Jan uary 2022, 2 7 but the U K E T S au th or ity decided not to iss ue
additi onal units. F i n a l l y, E U legislators are cu rrently co n s id e r in g p ro pos als f ro m the
E u ro p ean C o m m i s s i o n to re fo r m the E U E T S , w h i c h includ e p rop osals to stren gth en
2.2 CARBON PRICES ARE RISING BUT ARE GENERALLY TOO the Market Stab ility Reserve ( M S R ) by in creas in g the n u mb er of allowances that are
d rawn f ro m the ma r ket into the reserve each year.
LOW
Carbon tax rates also increased during 2021 and in the beginning of 2 0 2 2 , albeit by
Direct carbon prices have reached record levels acros s m u lti p le ju r is dicti o ns over the less than ETS prices. Wh ile carbon tax rates rem ain e d relati vely fl at i n 2 0 2 0 , th ey
past year, d riven by a co mb in ati o n of p olicy decisions , increased speculati on, an d increased by a n average of ro u gh l y U S D 6/tCO 2 e i n 2021, an d by an additi o nal
broader eco no mic trends, i n p ar ti cu lar glob al energy prices. However, prices i n m o st U S D 5/tCO 2 e as of A p r il 1, 2022, wi th m o st carbon tax ju r is dicti o ns in c reas in g their
ju r isd icti o ns re m ai n below wh at is needed to meet the Pa r is A gr ee ment ’s goals. carbon tax rates compared to the prev ious year. Several ju r isd icti o ns observed their
h igh e st do mesti c carbon tax rates, i n c lu d in g B r i ti s h Co l u m b ia a n d other Can ad i an
Direct carbon prices rallied to all-time highs in several systems in 2021. T h e p rovinces, I relan d , Latv ia , Liechten stein, So u th A fr ica, Swi tzer l an d , an d Ukraine (see
largest sh are of th i s grow th h a s been seen i n E T S s ( p ar ti c u lar ly those i n advanced Figure 5).
eco nomies), where prices react to m ar ke t co nd iti o ns (see Figure 4). Record prices
were seen i n the lin ke d E U a n d Sw i s s E T S m ar ke ts , the lin ked Califo r nia an d Québec
mar kets , the Regio n al Greenhouse G as Initi ati ve ( R G G I ) , a n d the N ew Ze alan d E T S .
Pr ices i n the U K E T S have also increased s ig n i fi c antl y sin ce its l au n ch i n mi d - 2 0 21 .
I n the C h i n a E T S , prices recovered i n early 20 2 2 fo llowin g a dip i n late 2021. I n the
ix Floor price in the NZ ETS increased from NZD 20 to NZD 30 in 2022, increasing toward NZD 39 in
Repu blic of Korea, as of Feb r u ar y 20 2 2 prices were ed gi n g back toward the record 2026; and CCR threshold increased from NZD 51 to NZD 70, increasing toward NZD 110 in 2026.

Y 1 2 3
FIGURE 4
Price evolution in select ETSs from 2 0 0 8 to 2021 v i i i
120
Ca rb on price (USD/t CO2e)
100 WHO declares public health emergency in New Zealand Russia invades Ukraine
response to COVID-19 virus abolishes price
cap
EU ETS
80
2008 Financial Black Monday stock EU ETS Reforms EU 5 5 % targ et Rep of Korea proposes more
crisis market crash, 2011 agreed agreed ambitious emissions target
60
NZ ETS
40
California Cap-and-Trade
20 Rep. of Korea
ETS RGGI
viii Based on data from ICAP Allowance Price Explorer.

Y 1 2 3
Most of the observed price increases are due to previous ly scheduled ch an ge s, s u ch The COVID-19 pandemic did not have a major impact on prices and ambition.
x
as i n the Ca na d ian p rov in ce s an d Ireland. xi
I n other cases, the revised rate was part A n al ys is of ch an ges to carbon prices i n Organ isati o n for Ec o n o m i c C o - o p e rati o n an d
of a broader fi s cal re fo r m, as i n N o r way xii
an d Ukraine. xiii
F i n a l l y, Swit ze r l an d an d D evelop ment a n d Gro up of 2 0 ( G 2 0 ) countries f ro m the b eg in n in g of the p a n d e m ic
Lie chten stei n’s 2 02 2 rate increase f ro m C H F 96/ tCO 2 ( U S D 101/tCO 2 ) i n 2021 to C H F u p to A u gu st 2021 indicates that the m ajo r i ty of ch an ge s adopted were likely to lead
to overall positi ve climate impacts. 3 1 While m o st of these were plan ned before the
120/tCO 2 ( U S D 130/tCO 2 ) stan d s out, as it wa s triggered by the au to mati c ad ju stment
p a nd emic , it is notable that m o st gove r n m ents d id not roll b ack or delay intro d u cin g
m e c h a n i s m that raises the rate whenever intermediate G H G targets i n the CO 2 law are
these ch an ge s due to the h ealth crisis. M a ny gover n me nts d id , however, introduce
not met.
measures like ly to lead to overall negati ve climate imp a cts , i n c lu d i n g in c reas in g fo ssil
Several jurisdictions have also established more ambitious price trajectories for the fuel su bs id ies a n d s u s p en d i n g aviati on taxes.
coming years. Fo r in stan ce, Sin gap o re proposed to p rogress ively increase the carbon
tax rate ( cu r rently S G D 5) to S G D 25 ( U S D 18)/tCO 2 e i n 2 0 2 4 an d 2025, an d S G D 4 5 In addition to actual policy shifts, demand from participants and speculators
( U S D 33)/tCO 2 e i n 2 0 2 6 an d 20 27, w ith a view to reac h in g S G D 5 0 - 8 0 ( U S D 3 7 - 5 9 ) / alike betting on prices increasing further has driven rising ETS prices. I n s o m e
tCO 2 e by 2030. T h e g ove r n m ent of So u th Afr ica h as also anno un ced a proposal to cases, specifi c develo p ments create th is expectati on, s u c h as the 2021 pu blicati o n
of reco mmen d ati o n s by the N ew Ze alan d g over n mental ad vis o r y body the Cl imate
increase the carbon tax rate f ro m the cur rent level of just un der U S D 10/tCO 2 e to reach
C h an ge C o m m i s s i o n , w h i c h were expected to lead to the g ove r n m ent fur ther
U S D 20/tCO 2 e by 2 0 2 6 , U S D 30/tCO 2 e by 2 0 30 an d U S D 120/tCO 2 e, beyond 2050. Th e s e
ti ght en i n g the E TS. 3 2 S i m i l a r l y, investo rs anti cipated that the Repu blic of Ko re a wo u ld
increases fo llow o n last ye ar ’s an n o u n ceme nt by Canada to increase m i n i m u m carbon
pause the use of inter n ati o nal off sets i n its E T S i n 2021 an d adopt a mo re amb i ti o u s
prices by C A D 15 ( U S D 12)/tCO 2 e an n u a ll y s u ch that it wil l reach or exceed C A D 170 climate target. 3 3 T h e broader pressure o n ju r isd icti o ns to adopt mo re amb iti o u s
( U S D 136)/tCO 2 e by 2030. While ju r isd icti o ns have an d wi ll conti nue to anno u nce a n d m iti gati o n targets, as collecti ve c o m m i t m e n t s conti nue to fall sh or t of wh at is needed
schedule increases to carbon tax rates, ju r is d icti o n s’ reacti on to energy c o m m o d i t y to meet the Pa r is Agr eem ent ’s temperature go als, m ay also p lay a role.
price s pikes, accelerated by the war i n Ukraine, m ay infl uence the ti mi n g. A s of A p r i l
2022, I nd o n es ia h ad ann ou nced it wi ll delay the intro ducti o n of its car bon tax due to Opening up ETS markets to non-liable entities can influence prices and market
the econ omic i mp act of h i g h energy prices 2 8 a n d Mexico an nou nced exe mpti o n s to the dynamics (see Box 3). I nvestm e nt fi r m s p u rch as i n g credits w ith the hope of tu r n i n g
carbon tax applied to gas oline an d diesel. 29
a profi t o n their resale have at least p ar ti ally dr iven recent price increases i n the
Spikes in ETS prices have been driven by more ambitious climate targets and Califo r n ia- Qu éb e c market. 3 4 , 3 5 Record prices i n the R G G I i n the United States have also
tightened ETS rules. Recent price increases i n the E U E T S have coincided with several coincided wi th increased parti cipati on by speculators. 3 6
s ign ifi cant p olicy ch an ges an d propo sals, b e gi n n i n g wit h the tem p o rar y re moval of
9 0 0 m i l l i o n allowan ces f ro m the m ar ke t i n 2018 and, m o re recently, the 2021 decision
to increase the 20 3 0 mi ti gati o n target an d the p ublicati on of p ro pos als to ti ghten the
E T S cap, a m o n g other refor ms. I n N e w Ze alan d , prices rose s h ar p ly aft er it abolished
the “ fi xe d - p r i c e o pti o n ” ( w h i c h allowed p arti cip ants to p ay a fi xed price of N Z D 35
( U S D 2 4 ) instead of s u r re n d er in g allowan ces ) i n June 2021. Pr ices i n the Repu blic of
Ko rea E T S s piked s h ar p l y i n June 2021 as the g over n m e nt proposed a ti g hte n i n g of
the c o u ntr y ’s 20 30 e mi s s i o n s target. 3 0
x. The Pan-Canadian Framework on Clean Growth and Climate Change established price benchmarks for provinces starting at CAD 10/t CO 2 in 2018 increasing annually at CAD 10/t CO 2 , to reach CAD 50/t CO 2 in
2022.
xi.Ireland Finance Act stipulates a yearly carbon tax rate increase of GBP 7.50/t CO 2 in 2021-2029 and an increase of GBP 6.50/t CO 2 in 2030.
xii In December 2021 Norway announced an increase of 28% reaching NOK 766/t CO 2 (USD 87/t CO 2 ) in 2022.
xiii In November 2021, Ukraine announced a threefold tax rate increase to UAH 30/t CO 2 (USD 1/t CO 2 ) for 2022.

Y 1 2 3
FIGURE 5
Record high carbon tax rates in six jurisdictions
140
C a r b o n p r i ce ( U S D / t CO 2 e )
Canada
Switzerland
120
Ireland
100
80
60
40 Singapore**
British Columbia ***
South Africa*
20
Latvia
Ukraine
0
20 0 8 2 0 10 2 0 12 2 0 14 2 0 16 2 0 18 20 20 20 22 20 24 20 26 20 28 20 30
Dotted line indicates scheduled price increases for those jurisdictions that have communicated future price trajectories.
* Est im ated path based on the government's ambition to increase the tax rate by at least USD 1 per year, and to increase the rate more rapidly from 2 0 2 6 to reach
USD 30/tCO2e in 2 0 3 0 and USD 120/tCO2e beyond 2 0 5 0 .
* * T h i s is a low range projection as the Singapore government plans to reach a carbon tax rate of SGD 50-80/tCO2e ( 3 6 - 5 8 USD/tCO2e) by 2 0 3 0 .
* * * B r i t i s h Columbia has committed to m eet or exceed the federal benchmark carbon price.

Y 1 2 3
BOX 3 As prices have reached record highs in the EU market, the role of speculation is
coming under close political scrutiny. Fi n an ci al enti ti es have lo n g played a role i n
The role of the financial sector in emissions trading the E U E T S but th is h as increased i n recent years as mo re inve stme nt fi r m s h ave
A n u mb e r of m ar ke ts, in cl u d i n g the lin ke d E U - S w i s s mar ket, the entered the mar ket a m i d rap id price grow th , tr ig ge r i n g con cer ns about a possible
Califo r n ia- Qu éb e c mar ket, the N e w Ze alan d E T S , R G G I , an d ( mo r e recently ) “c a r b o n bubble.” 3 7 T h e E u ro p e an Securiti es a n d Mar kets A u tho r ity fo u n d n o evidence
the Rep ub lic of Ko re a E T S , p er mi t n o n p ar ti c ip ants to trade i n em is s io n s of ins id er trad in g or s i m i l a r acti viti es i n either a p re li mi n a r y report i n late 2021 or
allowances a n d oft en also i n fi n an cia l i n str u m en ts derived f ro m them. a n i n - d e p t h a n a lys i s i n M arch 2022, but it set out a n u mb er of re co m men d ati o n s
Op en in g m ar ke ts u p to mo re actors c an increase liq uidity, w h i c h can enable to imp rove tran sp arency an d oversight i n the market. 3 8 Despite th is , E U l awm akers
a clearer price signal. However, it ca n also increase the r i s k of ma r ket have si gn ale d they wil l take measures to address possible m an i p u lati o n as part of
manipu lati o n. u p c o m i n g E T S refor ms, 3 9 a n d s o me have go ne so far as to propose l i m i ti n g trad i n g to
cover p ar ti cip ants a n d those trad i n g o n their behalf. 4 0
No n pa r ti ci p ants typ i cally in clu de brokers an d traders wh o pu rch ase
credits wi th the intenti o n to o n - s e l l i n the sho r t ter m an d b an ks that Conversely, some jurisdictions are hoping that opening trading to financial players
help co mp a n ies covered by the E T S to hedge their exposure to price will provide much-needed liquidity to the market. I n 2021, the Repu blic of Ko rea
developments. I n cr e as i n gl y, however, investors l o o k i n g to b u y an d h o ld opened tra d in g to a l imite d n u mb e r of fi n an ci al enti ti es wit h a view to in creas in g
credits i n anti cipati on of future price increases are entering the market. liq u id ity, w h i c h h as been l ac k in g i n the Ko re a n m ar ke t over the past years. B y
Other investors are b u y i n g allowances to diversify their portf olios or to December 2021, 2 0 fi n an c ials ha d entered the m ar ke t an d a n alysts predict that th is
hedge a ga in st infl ati on , as traditi onal infl ati o n hedges s u c h as oil are wi ll help give the ma r ket a liqu idity boost once these actors become mo re acquainted
in cre as in gly unreliable. T h i s h a s been seen i n the E U E T S a n d i n California. wi th the system. 4 1
Recent years have also seen o ff er ings of exc h a n g e - t ra d e d f u n d s that invest
i n em is s i o n s allowances, p rov i d i n g a vehicle for retail investo rs an d even Rising allowance prices come amid strong increases in the prices of other financial
in d iv id u a ls interested i n env iro n me ntal an d social gover nance to parti cipate assets in 2021. Other assets, i n c lu d in g real estate, stocks, a n d cry ptocu rrency, also
i n a ma r ket that m ay not have been previous ly accessible to them. sh owed stro n g growth. x i v Where carbon u n its ( i n c l u d i n g em is s io n allowances ) are
viewed as a n inve stme nt vehicle, broader factors infl u en ci n g investo r d e ma n d ( s u c h
as mo ne ta r y po licy an d cost of cap ital) are mo re li kely to aff ect b u y i n g or s el lin g
behavior. Th es e broader trends are exam p l es of the m y r i a d factors that ca n infl u en ce
prices i n em is s io n s mar kets an d po int to the challenges of d e ter mi n i n g the precise
factors that have led to a g ive n set of mar ket movements.
Rising gas prices are also likely to have played a role in both pushing allowance
prices upward and contributing to price crashes. T h i s is p erh aps m o st notable i n
Eu ro pe, where a tr i p l in g of n atural ga s prices a m i d ti ghtened s u p p ly f ro m R u s s i a led
to a larger s hare of coal i n the electricity m i x . T h i s put u pward pressure o n allowance
prices as in c reas in g E U em is s i o n s led to h ig h e r d e m an d for c a p - l i m i t e d allowances. 4 2
xiv Double digit percentage price increase y e ar - o n - y e a r were c ommon through 2021 in real estate
markets across Europe, Asia-Pacific, and North America, and nominal house prices have risen
in almost 90% of countries that have published housing statistics so far (Global Property Guide,
2021). MSCI’s World Index increased its value by 20%, and the total cryptocurrency market cap
increased by almost 200%. Data retrieved from CoinMarketCap. See https://coinmarketcap.com/.

Y 1 2 3
At the s am e ti me, s h ar p price drops fo l lowin g R u s s i a ’s inva s io n of Ukraine m ay be Carbon pricing alone is unlikely to spur early investment in these decarbonization
par ti ally exp lained by investo rs s el lin g e m is s i o n s allowances i n a bid to resp on d to pathways. 5 0 Po l ic y ma ke rs m u s t im p l em e nt targeted measu res i n c lu d in g i nvesti n g i n
capital needs generated by r i s i n g gas prices. 4 3 So m e an al ysts have also pointed to ga s research, development, an d demon strati on s, capital an d operati onal subsid ies , a n d
prices as b ein g a m o n g the d rivers of the record prices recorded i n R G G I i n late 2021. 44
p ub lic s up po rt for green hyd ro ge n infrastr u ctu re or h i g h - v o l ta g e tran s mi s s i o n lin es
to achieve net zero transfor mati on .
Despite prices increasing across a number of major CPIs in the past year, on the
whole current prices remain short of levels needed to drive the transformative
change needed to reach the 1.5°C target or unlock investment in essential 2.3 CARBON PRICING REVENUES INCREASE SHARPLY,
decarbonization pathways (see Figure 6) . T h e Report of the H i g h - L e v e l C o m m i s s i o n
PARTICULARLY FROM ETSs
o n Car bo n Pr ices identi fi ed a U S D 50-100/ tCO 2 e range (or “c a r b o n price c o r r id o r ” )
as the price needed by 20 3 0 to keep glob al heati ng to below 2 ° C — t h e upper end of Carb on p r i ci n g revenues increased s h ar p ly i n 2021, d riven largely by h i gh e r carbon
the l i m i t agreed i n the Pa r is A g r e e m e nt — a s part of a co mp reh ensive climate po licy prices, as revenues generated by E T S s su r passed revenue generated by carbon taxes
package. x v , 4 5 Bu t less th an 4 % of glob al em i s s io n s i n 20 2 2 are covered by a direct for the fi rst ti me.
carbon price at or above the esti mated range required by 2030. Fu r th er, mo re recent
esti mates indicate even h i gh e r prices m ay be needed to reduce e mi s s i o n s to net zero Global carbon pricing revenue collected in 2021 was around USD 8 4 billion,
by 2 0 5 0 — w h i c h the I ntergove r n me ntal Pan el o n Cli mate Ch an g e s ays is necessar y to representing an increase of over USD 31 billion compared to 2020. x v i A s wi th
meet the 1.5°C goal. A su r vey of 30 climate econo mists conducted i n 2021 esti mates p revio us increases, h ig h e r carbon prices, in cl u d i n g i n the E U E T S , wh i c h acco unts
prices of U S D 50 -2 5 0/ tCO 2 e wo u ld be needed to meet th is go al, with a me d i an for arou nd 4 1 % of all carbon p r i cin g revenue, as well as the N e w Ze al an d E T S ( w h i c h
c o m me n c e d au cti o n in g allowances) an d the Califo r nia C a p - a n d - Tr a d e P ro g ra m , drive
forecast of U S D 100/tCO 2 e. 4 6
the increase i n carbon revenue. Tw o E T S s that began operati on i n 2021, the U K E T S
Higher prices coupled with a coherent set of complementary policy measures ( w h i c h includ es revenue p revio usly collected u nder the E U E T S ) a n d the G e r m a ny
will be needed across most jurisdictions to achieve both s ho r t-te r m mitigation E T S , together accounted for over 1 6 % of total carbon p r ic in g revenue generated i n
goals and long-ter m net zero strategies. T h i s is p arti cular ly the case for d r i v i n g 2021. I t is wo r th n o ti n g that the Chinese nati on al E T S freely allocated all allowan ces
d ecar bo nizati o n i n h a r d - t o - a b a t e sectors where l o w- c a r b o n approaches are less d u r i n g 2021. A s a result, even t h o u g h it is the largest E T S i n operati on ( i n ter ms of
developed, p arti cularly exp ens ive, or s i m p l y unavailable. So me an al ysts s u g gest a mo u nt of em is s io n s covered), there wa s n o revenue generated f ro m the Chinese
tran sfo r mati ve acti on i n h a r d - t o - a b at e sectors wil l require carbon prices o n the order n ati o nal E T S .
of U S D 100-170/tCO 2 e by 2030. 4 7 Su c h sectors oft en require techno logy so lu ti ons
i nvo l v i n g l o w- c a r b o n hyd ro gen an d carbon capture an d storage, as these opti o ns
c an compete wit h traditi onal technologies an d practi ces o n l y if carbon prices are
ver y h i g h or other s u p p o r ti n g polices are i n place. 4 8 A ch i e v in g eco nomic b r e a k- e v e n
p o i n t s — t h ro u g h a co mb in ati o n of carbon p r i c in g an d tech no lo gy in c e nti ve s — wo u l d
be a majo r en a b lin g development for investment i n deep d ecarb on izati on p at hways,
w h i c h are in cre as in gly targeted for their im p o r tan ce i n “ ke e p i n g 1.5 alive.” 4 9
In creas ed techno logy d eploy ment c an trig ger a virtu ou s cycle by d r i v i n g imp roved
econ omies of scale, lear n in g , an d fu rther cost reducti ons.
xv. The High-Level Commission’s report argues that a well-designed carbon price is an indispensable part of a strategy for reducing emissions in an efficient way. However, it also emphasizes that carbon pricing
will only b e effective when adopted as part of a comprehensive policy package that includes measures to tackle market failures other than the GHG externality.
xvi. Note that carbon pricing revenue refers to the amount of revenue collected by governments through direct carbon pricing instruments—that is, from carbon taxes paid or allowances sold through auctions.

Y 1 2 3
FIGURE 6
Carbon prices as of April 1, 2 0 2 2
14 0 Carbon tax
Ca r b o n p rice (USD/tCO2e)
137
ETS
130 130 130
12 0
General tax rate

Reduced rate for Liquified Petroleum Gas
and natural gas in the greenhouse industry 9- 88
10 0 99
Transport fuels
Other fossil fuels
87
5 9- 8 5
80
2 0 3 0 carbon price
Transport fuels
corridor*
64
Other fossil fuels
60
3 7- 4 5
Gasoline 53
Fossil fuels All other fossil fuels 49
F-gases 2 8- 4 3 46
19- 3 4
Fossil fuels 40 40 40 40 40 40 40 40 40
40
F-gases
22-27 3 2 33
31 31
26
24 24
20 Upper 17 17
19 19 2 0
Lower 13
14 15
0 . 4 -3.7 9 10
9
7 7
55 5 6
4 4 4
1 1 11 2 2
<1
0
Labrador
Liechtenstein
Guangdong
New Brunswick
Uruguay
Massachusetts
Tamaulipas
Prince Edward Island
Netherlands
Kazakhstan
Chon
RGGI
Saskatchewan
Labrador
European Union
Tokyo
gqing
ourg
s
Luxemb
Québec
Shanghai
Slovenia
South Africa
Newfoundland and
British Columbia
British Columbia
Newfo
New Brunswick
Northw
est
Territorie
undland and
New Zealand
United Kingdom
Spain
Poland
Ireland
Finland
Switzerland
Shenzhen
Fujian
Japan
Tianjin
Sweden
Beijing
Denmark
Norway
Ukraine
Singapore
Hubei
China
Latvia
Korea
Portugal
California
Canada
Mexico
Chile
Argentina
Switzerland
Colombia
Canada
United Kingdom
Alberta
Iceland
France
Germany
N o m i n a l prices on Ap ril 1, 20 22 are s h o w n for illustrati ve purpose only. Prices are not n ecess arily comparable between C P I s because of (for examp l e) diff erences i n the sectors covered and
allocati on met hod s applied, s p ecific exe mp ti on s , an d comp en s ati on methods.
* T h e 2 0 3 0 carbon price corridor is based on the recommendations in the report of the High-Level Commission on Carbon Prices.
**S e ve ral jurisdic ti ons ap pl y diff erent carb on tax rates to diff erent sectors or fuels. I n these cases, we have indicated the ran ge of ta x rates applied, wit h the d ar k blue s h a d i n g s h ow i n g the
lower rate and the combined dark blue and light blue shading representing the higher rate.

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FIGURE 7 X V I I FIGURE 8
Revenue generated per carbon pricing instrument in 2021 Evolution of global carbon pricing revenues over time
$90 Carbon tax ETS revenues surpass carbon
Billion USD
ETS tax revenues for the first
$80 time
la n d
$ 70
Z ea
ia
Fra
Ot he r
rn
m
do
Ne w
n ce
lifo
g $60
Ca in
Ca
Br na K 6 7%
it is da it ed
hC n
olu U $ 50
mb
ia
S we
de n $40 49%
Carbon a ny
Jap a n tax Ge r m 4 7% 4 7%
Norway USD $ 30
ETS 34%
28bn USD 5 6bn
Fi nl an d
r la n d $ 20 26 %
S wit z e
er 51% 33%
Ot h $ 10 66% 53% 53%
74 %
$0
2 0 16 2017 2018 2019 2020 2021
European Union
instan ce env iro n me nta l or development projects. Revenue f ro m carbon taxes also
tends to be ear mar ked , a lth o u gh a h ig h e r proporti on is allocated to consolidated
revenue and , to a lesser extent, redistributed th ro u gh tax exempti o n s or direct
For the first time ever, revenues generated by ETSs surpassed revenues generated transfers. 5 1 Howe ve r, c atego r i zin g revenue use h as complexiti es. Th e re i s limi te d
by carbon taxes. While carbon taxes have h i sto r i call y generated mo re revenues th a n ability to account for n u an c es i n fi scal policies, s u c h as where revenue use cou ld
E T S s , the gap h as narrowed i n recent years an d i n 2021 E T S s generated over t w o - potenti ally be as s ign ed to mu lti p le categories or where revenue is i n practi ce set aside
th ird s of total revenue (see Figure 7 a n d Figure 8). T h i s largely refl ects the fact that for specifi c purposes, but not legally earmarked.
E T S prices are r i s i n g faster th a n fi xe d - p r i c e i n str u me nts (see secti on 2.2). A second
factor is the in c reas in g share of aucti oned allowances rather th a n free allocati on. A Carbon pricing revenue presents opportunities to support a sustainable recovery,
good examp le i s N e w Zeal an d , w h i c h ramp e d u p a u cti o n in g i n 2021 as part of broader or to finance broader fiscal reforms. Re fo r m i n g ex isti n g fuel excise f ra me wo r ks i s a
refor ms to its E T S , as well additi onal revenue f ro m E T S s that began operati on i n f un d ame ntal part of Is rae l’s proposed carbon tax, an d U r u g u ay ’s n ewl y im p lem ented
2021. Data collected by the I nsti tu te for Climate Ec o n o m i c s indicates that m o s t E T S carbon tax h a s replaced ex isti n g fuel excise ch arges, wit h the carbon revenue being
revenue collected i n 2 0 2 0 wa s earmarked a n d chann eled to specifi c projects, for allocated to fi n an ce policies that pro mo te G H G mi ti gati o n a n d adaptati on.
xvii The size of the respective wedges reflects the revenues generated by the relevant instrument(s).

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2.4 CROSS-BORDER APPROACHES TO CARBON PRICING ARE The European Union came a step closer to adopting a Carbon Border Adjustment
INCREASINGLY IN THE SPOTLIGHT Mechanism. I n July 2021, the E u ro p ea n C o m m i s s i o n p ublish ed its m u c h - a n ti c i p at e d
proposal for a C B A M (see Box 4). While not the fi rst s u ch m e c h a n i s m i n existence, x x
Co untries are in crea sin gly m o v i n g toward cro s s - b o rd er approaches proposed i n the E U ’s m e c h a n i s m wo u ld be by far the largest. Several jur isdicti on s, i n c l u d i n g
acad emic an d p o licy literature, i n c lu d in g border carbon ad ju stme nts ( B C A s ) , climate Ukraine, 5 2 Uruguay, 5 3 a n d Ta i w a n , Chin a, 5 4 have already cited the C B A M proposal as
clubs, an d m i n i m u m carbon p r ic in g arran gements . T h e s e novel approaches can a d river for their eff orts to adopt a direct carbon price. A n d th o u g h several tra d in g
help resolve asy m me tr i ca l am bi ti o n but raise politi cal an d tech nical challen ges, p ar tn ers have expressed co ncern s about the m e c h a n i s m a n d h igh li ghte d the potenti al
parti cular ly arou n d d e te r m in i n g the equivalency of carbon p r i c in g a n d climate to take legal acti on or retaliatory meas ures again st the E U , there have as of yet been
policies, m o re generally. n o concrete m ove s toward either response. 5 5
As countries increase the ambition of their carbon prices and other climate policies, Several other jurisdictions are also pursuing the adoption of BCAs. C an ad a
carbon leakage x v ii i risks present important political concerns. While to date evidence undertook co nsu ltati on s o n a border m e c h a n i s m i n the fall of 2021 an d i n D ecemb er
of carbon leakage o ccu r r in g i n practi ce i s m i n i m a l , it re ma in s a n imp o r tant co ncer n P r i m e M inister Ju sti n Tr u d e a u man d ate d the fi nance m in iste r to develop an ap proach
for po liti cians a n d in d u st r y stakeholders. T h e s e con cer ns c an be heightened by the to ap p ly in g a border ad ju stment to e m i s s i o n s - i nt e n s i ve im p o r ts , s u c h as steel,
present context of in crea sin g infl ati o n a n d r i s i n g energy c o m m o d i t y prices. cement, a n d a lu m in u m . 5 6 I n the United K i n g d o m , a p ar li amentar y co mmitt ee is
cur rently ex p lo r i n g the p os sib ility of ado pti ng a border mechan ism. 5 7 A n d i n July
Countries are increasingly looking at trade measures as a way to protect against 2021 lawma ke rs i n the United States, wh i c h does not have a carbon price, introduced
potential carbon leakage as a result of carbon pricing. Most countries have addressed legislati on to a p pl y a carbon tariff to foss il fuel im p o r ts , as well as p ro ducts s u ch as
leakage concer ns by p rov id i n g exe mpti o n s , rebates, or free allocati on of allowan ces to a l u m i n u m , steel, iron , a n d cement. However, it is u n l ike ly th is proposal w il l obtain
exposed industries. However, these approaches have drawbacks: re d u cin g the carbon the su pp or t it needs to become law. 5 8
cost s i gn a l passed th ro u gh the s u p p ly ch ai n ca n h elp level the p l ay i n g fi eld v i s - à -
v i s foreign pro d ucts, but it also reduces the incenti ve to use en ergy mo re effi ciently BCAs are raising important questions around responsibility for climate action.
or s w itc h to l o w e r- c a r b o n produ cts an d processes. I n additi on, these approaches T h e p rinciple that countries have c o m m o n but diff erenti ated responsibiliti es for
tend to become less eff ecti ve at m a n a g i n g carbon leakage r i s k s at deeper levels of tack li n g climate ch an g e ac co rd in g to their abiliti es an d histo rical responsibiliti es
decar b on izati on , w h e n embodied e mi s s i o n s need to ap proach zero. Co ns equently, h as lo n g been en s h r in e d i n inter nati on al climate cooperati on. D evelo p in g countries
countries are in c reas in gl y lo o k i n g for other ways to even the p l ay i n g fi eld an d have argu ed that, i n un ilaterally ap p l y in g carbon p r i ci n g to pro du cts they produce,
equalize carbon prices for i m p o r ts an d d omesti cally produced goods. C ro s s - b o rd e r wealthy countries ado pti ng B C A s are v io lati ng th is lo n g- e stab lis h e d principle. 5 9 At the
collaborati on is one ap pro ach , s u ch as th ro u g h the unilateral imp l eme ntati o n of a s am e ti me, there are also calls for developed countries to take respo n sib ility for the
B C A , w h i c h wo u ld a p pl y do mesti c carbon p r ic in g to imports. I m p l e m e n ti n g a B C A carbon footprint of their c o n s u mpti o n , toward w h i c h a B C A wo u ld p lay a part. I n the
requires the development of meth odo logies to esti mate the e mi s s io n s embodied i n context of the E U C BA M , s o me have proposed exem pti n g least developed countries,
go od s, xix
as well as the degree to w h i c h those embodied e mi s s i o n s have already faced th o u g h others argue that th i s wou ld reduce the eff ecti veness of the m ech an is m. 6 0 A n
carbon p ricin g. Despite ch allen ges , the potenti al to adapt ex isti n g an d e m e rg i n g alternati ve ap proach to p ro mo ti n g equity i s to dedicate C BA M revenues to s u p p o r ti n g
technical develop ments o n m e a s u r i n g embodied e mi s s i o n s m a ke s c ro s s - b o rd e r develo pin g countries wi th l o w- c a r b o n development. While the E U ’s in iti al pro po sal
p r ic in g approaches appear feasible. wo u ld allocate m o s t revenues to the E U budget, l awm akers have proposed c h an n e li n g
revenues to least developed countries i n order to co mp en sate for the costs the
m e c h a n i s m wi ll i m p l y for them. 6 1
xviii Carbon leakage refers to the risk that emissions reduced in one jurisdiction are offset by increased emissions elsewhere. This can b e the result of production increasing in or being relocated to another
jurisdiction with laxer emission constraints (e.g., a jurisdiction with a lower, or zero, carbon price). Carbon leakage is an economic, political, and environmental concern: It can potentially translate into loss of
GDP, jobs, and tax revenue in the most ambitious countries, creating a disincentive to act, and also reduce the efficiency of climate policies by shifting emissions to laxer countries, which can lead to an increase
in global carbon emissions. There is little empirical evidence of carbon leakage occurring to date. This is likely, in part, due to historically low carbon prices and that most existing climate policies have included
measures (such as exemptions) to reduce carbon leakage in high-risk sectors.
xix Embodied emissions refers to the carbon content of a product. It relates to the GHG emissions released during the production of the good (not the carbon physically contained in a
product). xx California already operates applies a carbon price to electricity imports.

Y 1 2 3
BOX 4
The EU's proposed carbon border adjustment mechanism x x i
T h e adopti on of a C B A M is a key c o mp o n ent of the E U ’s climate strategy an d its I m p o r te rs wo u ld be able to avoid or reduce potenti al costs im p o s ed by the C B A M i n
amb i ti o n to achieve net zero em is s i o n s by 2 0 5 0 wh ile s afegu ard i n g co mp eti ti ven ess a n u m b e r of ways. Fi rst, i mp o r t s f ro m countries that parti cipate i n the E U E T S , or
an d avo id i n g carbon leakage. U nd er the draft regu lati on s released i n Ju ly 2021, the have a do mesti c E T S lin ked to th e m, wo u ld be f u l ly exempt. x x i i Second, goo ds that are
C BA M wo u ld eff ecti vely invo lve a p p l y in g a carbon price to i mp o r t s of certain goo ds subject to a direct carbon price (i.e., a carbon tax or E T S ) i n their c o u ntr y of o r i gi n
to the E U , proporti onate to the go o d s ’ “em b o d ied e m i s s i o n s ,” or the G H G e mi s s i o n s wo u ld be eligible for a rebate equal to the price already p aid p rior to export. T h i rd ,
generated d u r i n g their manufacture. I m p o r te rs of covered good s wo u ld be required to electricity im p o r ts f ro m countries wh os e electricity ma r ke ts are integrated wi th that
pu rchase e mi s s io n certi fi cates proporti onate to their embodied emiss ions . T h e price of the E U wo u ld be exempt.
of these certi fi cates wo u ld m i r ro r that of E U E T S allowances.
T h e proposal for the C B A M i s cur rently u nd er review by the E u ro p ea n Par li am e nt
T h e C B A M i s intended to grad u ally replace the cu r rent free allocati on of allowan ces a n d the E u ro p ea n Council. Potenti al a me n d me nts proposed i n the p ar li ament
as the m a i n measu re to co mb at carbon leakage i n the E U E T S . Und er the draft includ e m a k i n g the 2 0 2 5 - 2 0 2 8 tran siti onal period shorter a n d sooner, to 2 0 2 3 -
proposal, the m e c h a n i s m wo u ld be p hased i n proporti onate to the p h a s e - o u t of the 2 0 2 4 , e li mi n ati n g E U E T S free allocati on m u c h mo re rapidly. Scope 2 e mi s s i o n s f ro m
ex i sti n g free allocati on. T h e E u ro p e an C o m m i s s i o n wo u ld adjust the n u mb e r of C B A M electricity use m i g h t be includ ed, an d use of C B A M revenues m i g h t be bett er targeted
certi fi cates to be surrendered to refl ect the extent of free allowances allocated un der to su pp or t climate acti on outside the E U bloc. I n M arch 2022, the Co un c il released a
the E U E T S , w h i c h wo u ld decline by 1 0 % each year over the period to 2035. draft text p u s h i n g for C B A M iss ues relati n g to free allocati on p h a s e - o u t an d expo rt
rebates to be part of the u p c o m i n g E U E T S review. T h i s m ove h as been su g gested to
A cco rd i n g to the proposal, the C B A M wo u ld ap p ly to the i mp o r t of electricity an d streamline the fi n alizati o n of the C B A M regulati o n an d s h ift d e c i s i o n - m a k i n g power
specifi ed goo ds i n the steel, iron , cement, ferti lizer, a n d a l u m i n u m sectors. T h e f ro m fi nance mi n i st ers to env iro n me nt mi n i sters , considered bett er positi oned to
proposal wo u ld in iti al ly o n l y ap pl y the C B A M to Scope 1 em is s io n s , th o u g h imp o r ters address these issues. T h e F r e n c h P residen cy of the E U i s a i m i n g to achieve agreement
wo u ld need to report o n embodied Scope 2 indirect em is s i o n s f ro m electricity o n the measu re a m o n g lawma ke rs by June 2022, th o u gh it is as yet u nclear if th is wil l
c o n s u mp ti o n , leav i ng the door open to in clud e these e m is s i o n s i n future years. be achieved.
E mb o d i e d em is s i o n s for p ro ducts wo u ld be determined i n two ways : Calcu lati on s
wo u ld be based o n actual e m is s i o n s recorded at in stallati o n level, verifi ed by
accredited verifi ers, wh ile default values wo u ld be applied where imp o r te rs can no t
s h ow actual e m is s i o n s generated. Fo r electricity, calcu lati o ns wo u ld p r i m a r i l y rely o n
t h i rd - c o u n t r y default values that correspond to average CO 2 e mi s s i o n factors i n the
country.
xxi. The European Commission presented its final draft regulations for the CBAM in July 2021. See European Commission, “Proposal for a Regulation of the European Parliament and of the Council Establishing a
Carbon Border Adjustment Mechanism,” July 14, 2021.
xxii.The proposed regulation allows for the possibility of further acts which increase the number of CBAM exemptions. Such cases would include a third country’s inclusion into the EU ETS, or a linkage agreement
between the EU ETS and the country’s own emission trading system (as is the case for Switzerland).

Y 1 2 3
Challenges in determining the equivalency of climate policy instruments are fueling addressed th ro u gh po licy d es ign , s u c h as th ro u gh a ti ered p r i cin g str ucture refl ecti ng
debates over the design of BCAs. A p p ly in g B CA s fair ly an d eff ecti vely requires the level of development.
development of methodologies to esti mate the emission s embodied in impo rts, as well
as the degree to wh i ch those embodied emissio ns have already faced carbon pr icing Interest in the establishment of common or minimum standards for carbon
or si mil ar policies. While methodologies for domesti c ou tpu t-based allocati on have pricing across jurisdictions is increasing. T h e m o st am bi ti o u s of these approaches
lo n g off ered ways to esti mate embodied emissions, xxiii
esti mati n g whether they have wo u ld be the adopti on of a m i n i m u m price o n carbon or “inter n ati o n al carbon price
already been subject to equivalent carbon p ricin g measures is less straightf orward, fl o o r,” either g lo b all y or a m o n g large e m itti n g countries. T h e latt er could provide a
given the presence of free allocati on, s m a l l - fi r m exclusions, or energy tax exempti ons. m o re manageab le “ m i n i - l a t e r a l ” app roach, to allow s c al in g amb iti o n by ad d res s in g
Indirect carbon prices (see section 1.2), su c h as those related to fuel excise taxes or fuel co ncer ns that co mp eti tors wil l ga i n an u nfa ir advantage due to lower (or n o ) carbon
subsidies, also have c o mp lex interacti ons with direct carbon p ricin g and can infl uence prices. I n additi on, a m i n i m u m carbon price can be applied m o re b ro adly th a n
carbon leakage risks. T h i s debate is currently p lay in g out in the design of the E U C BA M , other approaches ( s u c h as B C A s ) , wh i c h o n l y target traded products. T h e I M F 6 3 a n d
where key trading partners argue that stron g climate policies, rather th an on ly carbon the WTO 6 4 have called for the establis hment of s u c h a m e c h a n i s m , as have va r io u s
pr icing , should be recognized. However, the E U h as so far been reluctant to recognize acad emics an d a U N - c o nv e n e d gro u p of glo bal asset owners responsible for m a n a g i n g
other policies, argu i ng that d eter mining equivalency between policies is frau ght with U S D 6 . 6 trillion. 6 5 Bo th Can ad a 6 6 an d France 6 7 have recently joined the call for a n
complicati ons. inter nati on al price fl oor, th o u gh the F r e n c h proposal o n l y covers E U me mb er states.
G e r m a ny ’s proposed climate club wo u ld focus, a m o n g other th in gs , o n “ u n i fo r m
The potential establishment of “climate clubs” xxiv
could provide a forum to adopt s ta n d a rd s ” for carbon p r i ci n g , w h i c h could includ e the estab lish ment of a m i n i m u m
mutual agreements on decarbonization that could provide an alternative path to price fl oor. 6 8 However, an inter nati on al carbon price fl oor poses s o m e ch allen ges,
recognizing equivalency. Fo r examp le , the proposed U S - E U C a r b o n - B a s e d Sectoral i n c lu d in g the need to u nd erstand equivalency of coverage between ju r is d icti o n s ’
A r ran g e me nt o n Steel an d A l u m i n u m Tra d e a i m s to establish c o m m o n d efi n iti o ns carbon prices an d to account for equity iss ues acros s par ti cipati ng countries.
of l o w- c a r b o n steel th ro u gh m u tu a l l y agreed trade ar rangements. G e r m a ny h a s,
moreover, in clud ed the establishment of “ a n open an d cooperati ve intern ati o nal Moves to link emissions trading systems in the past year have been limited.
climate c l u b ” a m o n g its p olicy prioriti es for its presidency of the Grou p of Seven ( G 7 ) While l i n k i n g h a s been a focus i n the recent past for intern ati o nal cooperati on o n
i n 20 22 , x x v a proposal that h as gained s up por t a m o n g other E U countries. 6 2 I t is as yet carbon p r i ci n g , it presents a h ost of co mp l ex challen ges an d o n ly a s m a l l n u m b e r
un clear wh ether s u c h ar ran ge ments wo u ld be c o mp le mentar y or alternati ve to other of ju r isd icti o ns have so far ma n a ge d to l i n k their systems. D evelop ments over the
trade m e c h a n i s m s , s u ch as the CBAM . While these types of climate club approaches past year have been lim ited i n th is regard. Califor nia an d Québec ann ou nced their
potenti ally provide a m o de l for sid estepp ing s o m e of the co mp l ex co ns id erati on s intenti o n to explore oppor tuniti es for future carbon ma r ke t a l i g n m e nt w ith N e w
arou nd p olicy equivalency, they wi ll like ly require s o me way of diff erenti ati ng Zeal an d u nder the Western Clim ate Initi ati ve. 6 9 Wa s h i n gto n State, wh i c h wi ll la u n ch
between l o w - a n d h i g h - c a r b o n exporters. Wh ile B C A s can off er incenti ves to its n ew c a p - a n d - t r a d e p ro g ra m o n Jan uar y 1, 2023, 7 0 wi ll not l i n k to the initi ati ve
ex p o r ti n g producers to adopt mo re c l i m at e -f r i e n d l y practi ces (i.e., imp rove e mi s s i o n s at the outset, alth o u gh it m ay develop a regu lati on en ab l in g future s u c h linkage. 7 1
inten sity of goo d s), climate clubs wo u l d leverage trade measu res to in c enti v ize However, the inter n ati on al carbon mar ket rules agreed at COP 2 6 i n G la s gow provide
fo reign ju risd icti o ns to adopt mo re amb iti o u s climate policies. Howe ve r, climate s o me welco me certainty re gard in g the imp licati o n s of l i n k i n g for countries’ n ati o nal
clu bs have the potenti al to disadvantage l o w e r- i n c o m e countries, where they are not m iti gati o n targets (see Box 5).
able to meet m e mb e rs h ip criteria set by m o re advanced economies. T h i s could be
xxiii. For example, emissions intensity benchmarking approaches in the EU, Canada, and New Zealand.
xxiv. The term “climate club” has b een used in different circumstances and can capture a range of frameworks. William Nordhaus developed the concept of a climate club as “an agreement by participating countries
to undertake harmonized emissions reductions,” with memb ers receiving benefits, while nonmembers are penalized. In this report, the term “climate clubs” is used in a general way to capture formalized
agreements between countries aimed at promoting climate mitigation outcomes. W. Nordhaus, “Climate Clubs: Overcoming Free-riding in International Climate Policy,” American Economic Review 105, no. 4,
(2015).
xxv. While the initial proposal has b een launched in the context of the G7, it would in principle b e open to all nations and Germany is considering broadening the proposal to the G20, which includes major emerging
economies such as China, India, and Brazil.

Y 1 2 3
BOX 5 2.5 RISING ENERGY PRICES CREATE CHALLENGES AND
Article 6 rules on linking emissions trading systems OPPORTUNITIES FOR CARBON PRICING
T h e fi n ali ze d Arti cle 6 Rulebo ok allows countries to establish the l i n k i n g E x i s ti n g politi cal ch allenges i n ad opti n g an d ex p a n d i n g carbon p r i ci n g have been
of their do mesti c E T S s as a “cooperati ve ap p ro a ch ” un der Arti cle 6.2. xxvi am pl ifi ed as glo bal en ergy prices have increased, p u tti n g pressure o n i n d iv id u al
D o i n g so requires l i n k i n g par tners to esti mate the increase or reducti on h ous ehold budgets. E n s u r i n g carbon p r ic in g is fair, an d seen to be fair, wil l be cru cial i n
of em is s i o n s i n their ju risd icti o n in ce nti vi ze d by the trade of allowan ces, b u il d i n g an d m a i n ta i n i n g p ub lic support.
an d translate th is net a mo u nt into inter nati on ally transferred m iti gati o n
ou tco mes ( I T M O s ) . Th es e I T M O s are th en accounted for i n the Arti cle 6 Global oil and gas prices have sharply increased in the past year, fueled by a
repo r ti ng structures, e n ab li n g the l i n k i n g partner that h as reduced its combination of growing demand due to post-COVID economic recovery, supply
em is s i o n s th ro u gh a lin ked E T S to use these reducti ons toward ach i ev in g constraints, and, more recently, the war in Ukraine. E u ro p ea n ga s prices are n ow at
its N D C target. I nvers e ly, the l i n k i n g partner that h a s eff ecti vely increased their h igh est levels ever, wh ile glo bal oil prices are at their h igh e st levels i n al mo st a
its e mi s s i o n s th ro u gh the l i n k i n g p ro g ra m wil l need to refl ect th is increase decade. x x v i i A E U c o m m i t m e n t to reduce reliance o n R u s s i a n oil a n d ga s i n the wake of
i n e mi s s i o n s i n its repo r ti n g as well. 7 2 the inva s io n of U krain e me a nwh i le h as the potenti al to increase gas prices further. 7 3
T h e su dd en en ergy price increases an d co r re s p o n d in g infl ati on i s p u tti n g pressure o n
g over n m e nts to shield c o n s u m e rs an d vulnerable h ou seho lds f ro m energy poverty, by
re gu lati n g or c ap p in g en ergy prices, intro d u cin g subsidies, or s c ra p p i n g surcharges.
Wh ile typ i call y o n l y applied for a li mited ti me, a ny measures that directly reduce the
price of energy wo u ld d am p e n incenti ves to reduce emiss ions .
The current political and economic context presents both challenges and
opportunities for carbon pricing. I n econo mies h i g h l y exposed to fuel prices, n ew,
expand ed, or increased carbon prices wo u ld result i n additi onal price pressure o n
c o n s u me rs i n a context where c iti ze n s an d b us in esses are already st r u g g l i n g to p ay
their en ergy bills. I n the E U , s o m e m e mb e r states have either expressed unease or
asked to s u s p en d exten sion a n d refo r m p la n s of the E U E T S , due to wo rr ies about
the eff ect of the po licy o n the energy poor. 7 4 I n the s ho rt te r m, h i g h prices m ay lead
to reduced en ergy use but wil l not provide investo rs i n l o w- c a r b o n projects with the
k i n d of l o n g - t e r m certainty that a stable carbon price does. G ove r n me nts can also
use carbon p r i cin g to provide a l o n g e r- t e r m incenti ve to increase do mesti c renewable
en ergy p rod ucti on , wh i c h c an h elp reduce reliance o n fo reign en ergy a n d provide
s o me protecti on again st glob al en ergy price shocks.
Backlash against energy price increases is particularly strong when they are
perceived to disproportionately affect vulnerable populations. Widespread protests
triggered by the re mova l of liquifi ed p etro leu m ga s ( L P G ) su bsid ies i n K a za k h s ta n i n
xxvi Countries may also decide not to account for the link or communicate two separate
NDC targets for ETS and non-ETS sectors. See e.g., L. Schneider, J. Cludius, and S. La
Hoz Theuer, Accounting for the Linking of Emission Trading Systems under Article
6.2 of the Paris Agreement, International Carbon Action Partnership, 2018. xxvii Data obtained from https://tradingeconomics.com/.

Y 1 2 3
ear ly 2 0 22 s p ra n g f ro m the western M a n gystau region. T h i s regio n produces m o st BOX 6
of the c o u n tr y ’s oil but is a m o n g its poorest regio n s, an d a h i g h share of residents ’
vehicles r u n o n LPG. 7 5 T h e protests exposed deep u n d e r l y i n g discontent a m i d r i s i n g
Just transition in the EU’s climate policy
in equ ality a n d food costs an d a sense that the gove r n m ent wa s not ac ti n g i n the best T h e E U ’s F i t for 55 Package in clu des a n u mb e r of measu res to stren gthen
interests of the c o m m u n i t y, an d protestors’ d em an d s q u i ck l y exp an ded beyond fuel the E U ’s climate performance. E U E T S revenues wi ll benefi t the So cial
prices to en co mp as s broader politi cal reform. 7 6 T h i s i s i n lin e wi th previous studies, Clim ate F u n d , w h i c h w ill provide f u n d s to address the im p a cts of ex te n d in g
in cl u d in g recent research f ro m the I M F, w h i c h indicates that intro d u cin g C P I s i n the E U E T S to the road transp o rt an d b u i ld in g sector o n vulnerable
countries wi th h i g h in eq u ality an d lower social s p e n d i n g tends to tr ig ger a stro n ger h ous ehold s, mi cro - e nte r p r i s e s , a n d transp or t us ers to c u s h io n the fi n an c ial
backlash. T h e K a za k h s ta n g over n m e nt u lti mate ly agreed to ro ll back the en ergy po licy im p a cts o n c iti ze n s a n d businesses. 8 5 T h e E u ro p ean C o m m i s s i o n also iss ued
refor ms a n d place a cap o n fuel prices. 7 7 guidance for a fair an d in cl us i ve transiti on. 8 6 Ear lie r, the E u ro p e an Green
Deal also introduced the Just Tra n s i ti o n M e c h a n i s m to provide targeted
Aligning carbon pricing and related policy around achieving a “just transition” is su pp or t to region s aff ected m o s t by the tran siti on to a c l i m at e - n e u t ra l
central to building and maintaining support amid high energy prices, inflation, and economy. 8 7
the continued need for deeper transformation. K e y imp erati ves of a just tran siti on
in clu de creati n g reliable w o r k an d qu ality jobs, an d en s u r i n g a t- r i s k regio ns ,
in d ustr ies, co mm u n i ti e s , wor kers, an d c o n s u me rs sh are i n the benefi ts of a green
transiti on. 7 8 Po lic y m ake rs in c reas in g ly recognize a just trans iti o n as key not o n l y to
e n s u r in g equity i n climate p olicy, but also i n b u il d i n g the s up por t needed to adopt
an d su stain it. Was h in gto n State’s c a p - a n d - t r a d e p ro g ra m was adopted as par t of a
broader climate p ackage that also seeks to tackle env iro n me ntal racism. 7 9 I n Can ad a,
civ i l society is i n crea si n gly c a lli n g for a Just Tra n s i ti o n Act as part of stro nger climate
acti on, i n c lu d in g the recently increased carbon price. 8 0 I n d o n e s ia ’s M i n i st r y of
N ati o n al De velo pment P l a n n i n g reco gn ized the imp o r tan ce of allo cati ng a sh are of
their future carbon tax revenues for i nvestme nts that wi ll sup po rt a just tran siti on
i n a recent report, 8 1 a n d i n So u th Afr ica, the president h a s established a Pres id enti al
Clim ate C o m m i s s i o n , wh i c h , a m o n g other prior iti es, i s tasked with d efi n in g the Just
Tra n s i ti o n Fra m e wo r k for the country. F i n a l l y, the E U h a s adopted a ran ge of f u n d s
an d policies d es igned to off set the i mp ac ts of its climate strateg y — o f w h i c h the
E U E T S is a key p a r t — o n vulnerable p op ulati o ns an d sectors (see Box 6) , an d s o me
lawma ke rs see the i n c lu s i o n of targeted social investments as cr ucial to s u p p o r ti n g a
proposed second E T S for b u i ld in g s an d transport. 8 2
Implementing just transition strategies can be partially financed through carbon

pricing revenues. I n Pen n sy lva n i a, the U S state that h a s s ign a led j o in in g the R G G I i n
2022, revenue raised th ro u gh the proposed c a p - a n d - t r a d e syste m wil l, a m o n g other
th in g s , be used to su pp or t employees i n the fo ssil fuel in d u str y to tran siti on to other
sectors. 8 3 Ire lan d also an nou nced that the additi onal revenues f ro m the 2 0 22 carbon
tax increase wi ll be used to su pp or t initi ati ves that ensure a just tran siti on , i n c l u d i n g
th ro u g h increased s p e n d i n g o n social welfare an d preventi on of fuel poverty. 8 4

Y 1 2 3
Chapter 3 Carbon credit markets are at a crossroads. Strong voluntary demand and
broadening market diversity—expressed through new buyers, market niches,
Carbon
trading infrastructure, and distinct pricing and preferences—have driven the
market dynamics of the past year. At the same time, as the market grows, the
role of carbon crediting in meeting emissions goals is attracting higher scrutiny.
crediting
To sustain current growth, market actors will need to collaborate to support
high standards, protect environmental integrity and credibility, and deepen
liquidity. Specialized governance bodies, financial services, and new technological
-
infrastructures are emerging to support solutions to scaling up markets and
ensuring integrity.
markets
3.1 CARBON CREDIT MARKETS ARE GROWING RAPIDLY, LED
BY VOLUNTARY MARKET ACTIVITY
mechanisms
and
T h e grow th of carbon credit m ar ke ts h a s accelerated fur th er over the past year, wi th
issu an ces , transacti on s, an d prices all r i s i n g sh arp ly. N ew carbon ma r ke t rules set
at CO P 2 6 i n G la s gow have created additi onal certainty that m ay h elp inter nati o nal
co mp lian c e m ar ke ts develop fur th er i n c o m i n g years. Fo r n ow, m o st mar ket acti vity
re m ai n s centered o n the vo lu ntar y carbon market.
Carbon credit markets grew 4 8 % in 2021. T h e total n u mb e r of credits issued x x v i i i

f ro m intern ati o nal, do mesti c, an d independent credit m e c h a n i s m s x x i x increased f r o m
327 m i l l i o n to 4 7 8 milli o n . T h i s i s the b ig gest y e a r- o n - y e a r increase since 2012, the
peak of carbon credit iss uance (Figure 9). T h e total n u m b e r of credits issu ed since
2 0 0 7 i s aro un d 4.7 billion tCO 2 e.
xxviii. Credits may b e generated from projects as soon as the emissions removals or reductions take
place; however, credits will only b e officially issued once they have b een reviewed and verified
by the respective authorities.
xxix. The independent mechanisms included are those with the highest issuances: American Carbon
Registry, Climate Action Reserve, Gold Standard, the Verified Carbon Standard from Verra, Plan
Vivo, and the Global Carbon Council.

Y 1 2 3
FIGURE 9
Global volume of issuances by crediting mechanism category
CDM (11%)
Climate
Action
Reserve
Independent mechanisms Verified Carbon Standard ( 6(1 %))
Million tCO2e
10 0 0 2%
International mechanisms American
Taiwan Offset Program Carbon
(2.6%)
900 Domestic mechanisms
California Offset ProgramRegistry
(3.6%)
800 (2%)
Australia Emission Reduction Fund ( 3 . 6 % )
Gold
700 Standard
(9%)
600
500
400
30 0
200
100
0
20 0 7 20 0 8 20 0 9 20 10 20 11 20 12 20 13 20 14 20 15 2 0 16 2 0 17 20 18 2 0 19 20 20 20 21

Y 1 2 3
BOX 7 2. D omesti c complian ce ma r ke ts involve co mp an ies p u rch a sin g credits that are eligible
for meeti n g their obligati ons under a domesti c law, u s u a lly an E T S or a carbon tax.
Understanding carbon credit markets Th es e m ay include credits issued under internati onal, domesti c, or independent
Global carbon credit m a r ke ts con sist of a diverse ran ge of sources of s u p p ly, sources crediti ng m e c h a n i s m s depending o n the rules established by respecti ve governments.
of d em an d , an d trad i n g framewo rks .
3. Vo lu ntary carbon m ar ke ts consist of ( mo stl y private) enti ti es p u rch as in g carbon
Supply derives f ro m diff erent types of crediti ng m e c h a n i s m s , i n c lu d i n g the fo llowin g: credits for the purpose of c o mp l y i n g with voluntar y m iti gati o n co mm itments . T h e y
• International crediting mechanisms established un der inter n ati on al treati es—the largely consist of credits issued under independent crediti ng standards, th o u gh
Kyo to Protocol ( i n c l u d i n g the Clean D evelo pment M e c h a n i s m [ C D M ] ) an d the Par is s o me enti ti es also purchase those issued under internati onal or domesti c crediti ng
Agreement. x x x me ch an is ms .
• Domestic crediting mechanisms established by regio nal, n ati o nal, or sub nati on al
gover n ments , s u ch as the Califo r nia Co mp li an ce Off set P r o g r a m an d the Au stralia 4. Re s u l ts - b a s ed fi nance refers, i n the context of the carbon mar ket, to purchases of
E m i s s i o n s Redu cti o n Fu n d . carbon credits by gove r n me nts or internati onal organ izati o ns for the purpose of
• Independent crediting mechanisms includ es stan dards an d cred iti n g m e c h a n i s m s in c enti v izin g climate change m iti gati o n or meeti ng nati onal targets. Res u lts - b as e d
m an a ge d by independent, n o n gove r n me ntal enti ti es, s u c h as Verra a n d Gold fi nance can also refer to broader p ay ments i n return for the achievement of em iss i o n s
Standard. reducti ons, without a ny transfer of credits or other ownership.
Demand derives f ro m a ran ge of co mp l ian ce o bligati on s established u nd er T h e lin kages an d overlaps acros s co mp l ian ce a n d vo lu ntar y mar kets , as well as
intern ati o nal agreements an d n ati o nal laws, as well as vo lu ntar y c o m m i t m e n t s inter nati on al an d d omesti c m ar ke ts, conti nue to evolve.
adopted by co mp a n ies , gove r n m ents, an d other o rganizati o ns .
Wh ile m o st carbon credits tend to att ract a ran ge of diff erent k i n d s of bu yers,
m e a n i n g that few sources of s u p p ly ca n be m atch e d wi th o n ly one source of d e man d ,
it is possible to id enti fy four broad segments, largely based o n d em an d d rivers:
1. I nter nati onal co mp li an ce ma r ke ts p r i m a r i l y resp on d to c o m m i t m e n t s mad e

un der inter n ati o nal agreements. T h e y p r i m a r i l y co ns ist of ( i ) countries
vo lu ntar ily p u rc h as in g / u ti l iz in g credits or “ m i ti gati o n o u tc o m e s ” recognized
un der intern ati o n al treati es to h elp meet their em is s io n reducti on c o m m i t m e n t s
(p re v io u s ly established u n der the Kyo to Protocol a n d mo re recently the Pa r i s
Agreement); an d ( i i ) airlines p u rch a s in g credits eligible for me eti n g their
ob ligati on s established u nder the Car bo n Off setti ng an d Redu cti o n Sch e me for
Inter n ati on al Aviati on (CORSIA ) . x x x i
xxx Article 6 of the Paris Agreement provides the framework for international carbon markets: Article 6.4 establishes a centralized mechanism supervised and governed by the UNFCCC, which is expected to b e
administratively similar to the CDM of the Kyoto Protocol, and Article 6.2, on the other hand, provides a basis for bilateral or plurilateral voluntary cooperation amon g countries, which potentially offers
flexibility to reduce GHG emissions from a variety of processes, mechanisms, and standards.
xxxi One of the key features that distinguishes international compliance markets from voluntary markets is the mandatory authorization by the governments in whose jurisdiction the credits are generated and
transferred from. Under the Paris Agreement, the sale and purchase of carbon credits requires accounting by Parties to the Paris Agreement through a “corresponding adjustment.” While international
compliance markets exclusively trade credits that are authorized (i.e., include a commitment for corresponding adjustments by the seller government), voluntary carbon markets may also trade in credits that
are not accompanied by such authorization.

Y 1 2 3
FIGURE 10
Stylized representation of types of carbon crediting mechanisms and market segments x x x i i
Regional, national, and

SOURCES
International crediting mechanisms Independent crediting mechanisms

subnational crediting
SUPPLY
mechanisms
OF
e.g. CDM, Art 6 . 4 e.g. California Compliance Offset Program e.g. VCS, Gold Standard
International compliance markets Domestic compliance markets Results-based finance Voluntary carbon market
SEGMENTS
MARKET
Credit purchases aimed at Credit purchases aimed at Credit pu r c ha se s a i me d a t

Credit purchases as public
helping countries meet their complying with obligations m e e t i n g vol untary t a r g e t s o r
policy tool for incentivizing
NDCs and airlines comply with under carbon taxes, ETS commitments
mitigation
CORSIA
xxxii Due to the heterogeneity and interaction between the different carbon markets (described in Box 7) there may b e a potential overlap between issuances from international and independent mechanisms with
domestic mechanisms, as some jurisdictions reissue credits from independent mechanisms where they meet specific domestic criteria. To reduce this duplication, issued credits registered in more than one
registry are accounted for under the relevant domestic mechanisms (e.g., credits issued by the Climate Action Reserve and American Carbon Registry that meet specific requirements to b e used in the c a p - a n d -
trade are counted for by the California Offset Program).
The vast majority of new issuances came from projects registered under n ew registered projects i n 2021. T h i s refl ects the u ncertainty over the m e c h a n i s m ’s
independent crediting mechanisms, while issuances from international and future pr ior to clarifi cati on at COP 2 6 o n wh ether s o me C D M projects wo u ld be able to
domestic crediting mechanisms increased at a slower pace. T h i s represents a tran siti on to the n ew Arti cle 6.4 me c h an is m . T h e C D M wil l likely conti nue its grad u al
ma jo r tu r n aro u n d i n the past decade (see Figure 9 ). I n 2021, credit is suan ce f ro m p h as e d own over the c o m i n g years, p e n d in g its replacement by a n ew inter nati on al
independent stan dard s grew by 8 8 % , to talin g 352 m i l l i o n credits an d rep resenti ng ma r ket m e ch a n i s m. I ss u a n ce f ro m d o mesti c m e c h a n i s m s represented 1 5 % of total
7 4 % of the s u p p ly of carbon credits that year. I n contrast, is suan ce un der the C D M issuan ces , led by the Califor nia Co mp lian c e Off set P ro g ra m an d A u strali a’s E m i s s i o n s
represented 11% of total iss uances an d grew by 2 5 % i n the s a me period, wi th n o Red ucti on F u n d (see Figure 11).

Y 1 2 3
FIGURE 11
Crediting mechanisms Credits issued (MtCO2e)
American Carbon
18
8.83
Registry
FOREWORD
Climate Action
44
4.83
Reserve
Domestic mechanisms
Gold Standard
51
43.79
Independent mechanisms
International mechanisms
Verified Carbon Standard
110
Y
295.08
1
Plan Vivo
0.04
SUMMAR
1
Global Carbon Council
0.13
Clean Development
0
Mechanism
59.49
1
Alberta Emission
33
0.39
Offset
System
Australia Emission
CHAPTER
142
Reduction
17.04
Fund
California Compliance
38
17.42
Offset Program
Fujian Forestry Offset

3
0.33
Crediting
2
Mechanism
Guangdong Pu Hui Offset
20
Credit issuance and number of projects in 2021, by category of mechanisms
0.28
Crediting
Mechanism
CHAPTER
44
J-Credit Scheme
0.93
Québec Offset
*There is potential for overlap where domestic mechanisms rely on credits initially issued by other existing mechanisms.
3
0.18
Crediting
Mechanism
Republic of Korea Offset

28
3
5.20
Credit
Mechanism
Saitama Forest Absorption
0
15
Number of projects registered
Certification
CHAPTER
System
Saitama Target Setting
59 2
6.40
Emissions Trading
System
Spain FES-CO2
0
program
0.86
Switzerland CO2 Attestations

13
Crediting
1.40
Mechanism
Taiwan GHG Offset

20
ANNEXES
Management
12.41
Program
Thailand Voluntary Emission

32
3 .0 3
Reduction Program
37
For the first time, the total value of the voluntary carbon market exceeded more th i s move is part of a broader strategy to raise amb i ti o n an d b r i n g the n ati o nal E T S
than USD 1 billion in November 2021. 8 8 T h e ma r ke t h as fur th er g row n to U S D 1.4 i n line wi th the E U E T S , i n Califo r nia, the restricti ons were largely mo ti vated by
billion as of the wr i ti n g of th is report, acco rd i n g to Eco syste m Marketplace. x x x i i i T h i s co ncern s over the i mp ac t of off sets o n env iro n me ntal justi ce issues. T h e a m e n d m e n t
rapid increase i n value refl ects both r i s i n g prices an d r i s i n g d em an d f ro m corporate to the o r igin a l c a p - a n d - t r a d e regu lati o n specifi es that 5 0 % of all projects m u s t, f ro m
b uyers lead in g to h i gh e r transacted volumes. Global average carbon credit p rices x x x i v 2021, directly benefi t air an d water po lluti o n iss ues w i th i n the state. x x x v i i
move d f ro m U S D 2.49/tCO 2 e i n 2 0 2 0 to U S D 3.82/tCO 2 e i n 2021, wh ile the vo lu me of
credits transacted i n the vo lu ntar y mar ket exceeded 362 m i l l i o n credits, 9 2 % m o re Demand from international compliance markets changed little over the past year.
th an i n 2020. 8 9 Wh ile prices conti n ued to rise i n 2021, additi onal s u p p ly f ro m s u rg i n g T h e Inter nati on al Ci v il Av iati on Organ izati o n ( I C A O ) C O RS I A pilot phase started o n
project registrati on s, n ew credit iss uance, an d reduced reti rements have slowed the Janu ar y 1, 2021, but d e ma n d f ro m C O R S I A r em ai n s very li mited as intern ati o nal air
rate of increase. At the s a me ti me, corporate interest i n u s i n g credits to meet climate travel re m ai n s depressed by the o n g o in g CO V I D - 1 9 p an d em ic, as well as the I CA O
goals, alo n g wi th traders an d investors h o p i n g to tu r n a profi t o n co nti nu ed price Co u n c il ’s decision to use 2019 e mi s s i o n s as the baseline above wh i c h credits m u s t be
increases, h a s supported increased mar ket value an d liquidity. surrendered. Wh ile d e man d for fl i ghts recovered s o m ewh at i n 2021 compared wi th
2 0 2 0 , it wa s sti ll 7 5 % below 2019 levels. 9 1 Cho ices by I CAO x x x v i i i led to l e s s - st r i n g e n t
Demand from domestic compliance markets, such as carbon taxes and ETSs, s h o r t- t e r m decar b onizati on requirements for air lin es a n d h a s largely elimin ated
remains small, but this may change over time with agreement on Article 6 rules. d e m an d i n the imme d iate term. More d e m an d could emerge later th is decade, a n d
M a ny carbon p r ic in g i n str u m en ts allow enti ti es to use carbon credits to meet their recent a n a lys i s s u g g ests that even u nder a m e d i u m COV I D - r e c ov e r y scenario G H G
obligati ons. H owe ve r, m o st restrict credits to those generated d omesti cally or l i m i t e mi s s i o n s f ro m glo bal air travel wi ll exceed 2019 levels by 2024. 9 2 I n additi on,
the am o u nt that c an be used for overall compliance. x x x v While m a n y jur is dicti o ns Ec o system Marketplace h as reported that wh il e CO RS I A - e l i g i b l e credits are not being
have established their own do mesti c crediti ng m e c h a n i s m s for me eti n g tax or E T S p urchased for co mp lian c e purposes, they are b ein g bo ught an d so ld at a p r e m i u m
o bligati o ns (see Figure 12), fi ve countries so far rely o n carbon credits iss ued by to n o n - C O R S I A credits sold to corporate e n d - u s e r s an d inter mediar ies, as s o m e
exi sti n g crediti ng m e ch a n i s ms . xxxvi
Ru l e c h an ges i n so m e E T S s , in cl u d in g n ew corporate b uyers see C O R S I A eligibility as a s i g n that m i n i m u m qu ality standard s
restr icti ons o n the vo l u m e a n d type of carbon credits that c an be used i n Califo r n ia’s have been met. 9 3
C a p - a n d - Tr a d e P r o g r a m an d the exclu sio n of credits f ro m the Swi tzer la n d E T S a n d
E U E T S f ro m 2021, are l ike ly to reduce demand. 9 0 Wh ile i n the case of Swi tze r l an d ,
xxxiii Voluntary carbon market data is provided by Forest Trends’ non-profit initiative Ecosystem Marketplace. Ecosystem Marketplace data contains trade details such as price, volume, and other carbon credit
project and transaction attributes. The dataset for 2021 h ad not b een finalized by the time this report was published and therefore market value figures do not represent a complete annual picture. However,
Ecosystem Marketplace’s dataset remains the most comprehensive available for the 2021 calendar year. Ecosystem Marketplace will release updated 2021 figures later in 2022 once data from all respondents
has b een collected.
xxxiv The prices shown here are from Ecosystem Marketplace and are a global representation of both over-the-counter (OTC) transaction prices and trading platform cleared transaction prices, combined. They are
lower than standardized prices such as the Platt prices shown in Figure 13. This price difference may b e due to the fact that prices for standardized contracts—transactions involving packages of carbon credits
with certified c ommon characteristics (project type, vintages, and/or issuing standards) and sold as standard products by carbon exchanges—incorporate the additional costs of ex -ante screening and quality
assessment activities performed by standardized credit providers, which is not the case in OTC transactions. This price difference may also b e due to differences the year of publication—Figure 13 shows prices
for 2022 compared to Ecosystem Marketplace prices for 2021.
xxxv The exceptions include Korea’s ETS and Mexico’s Carbon Tax. Korea’s ETS, as of 2021, permits emitters to use international credits for the full 5% of eligible offset use. International credits must b e CDM
projects that are in part owned, funded, or operated by a Korean company. See World Bank,) “Carbon Pricing Dashboard: Korea ETS,” 2022; and ICAP, “Emissions Trading Scheme Dashboard,” 2021. Mexico’s
Carbon Tax permits covered entities to use certified emission reductions from the CDM, providing they are eligible for compliance in the EU ETS. See World Bank, “Carbon Pricing Dashboard: Mexico ETS,” 2022
xxxvi These schemes are Colombia’s Carbon Tax, South Africa’s Carbon Tax, China’s regional and national ETS schemes, Korea’s ETS, and Mexico’s Carbon Tax and pilot ETS.
xxxvii. ICAP, “Switzerland Revises ETS Rules on Cap, Allocation, and Offsets,” ETS News, December 3, 2020; see Section 5 of the AB-398 California Global Warming Solutions Act of 2006: Market-based compliance
mechanisms: fire prevention fees: sales and use tax manufacturing exemption. (2017 amendment).
xxxviii. The baseline was initially intended to b e derived from average emissions over the 2 0 19 -20 2 0 period. However, following the major drop in passenger numbers caused by the COVID-19 pandemic, the ICAO
Council decided to build the baseline solely on 2019 emissions.

Y 1 2 3
FIGURE 12
Map of national and subnational crediting mechanisms
Saskatchewan GHG
Offset Program
Alberta Emission
Canada Federal Offset System Québec Offset Crediting
GHG Offset System Mechanism
British Columbia
Offset
Program
Republic of Korea Offset
Switzerland CO2 Kazakhstan Crediting Credit Mechanism
Attestations Crediting Mechanism
Mechanism
Spain FES-CO2 Joint Crediting Mechanism

California Compliance Program J-Credit Scheme
Offset Program
China GHG Voluntary
Emission Reduction Program
RGGI CO2 Offset Mechanism
Mexico Crediting
Mechanism
Thailand Voluntary Taiwan GHG Offset
Emission Reduction Management Program Beijing Parking Offset
Program Crediting Mechanism
Beijing Forestry
Saitama Target Setting
Colombia Crediting Sri Lanka Carbon Mechanism
Offset Emissions Trading System
Mechanism Crediting Mechanism
Saitama Forest Absorption
Certification System
Tokyo Cap-and-Trade
Program
Chile Crediting Indo-Pacific Carbon
Mechanism Offsets Scheme
South Africa Chongqing Carbon Fujian Forestry Offset

Crediting Mechanism Australia Emissions Offset Mechanism Crediting Mechanism
Implemented Reduction Fund
Under development
Guangdong Pu Hui Offset
Crediting Mechanism
Circles represent cred iti ng m e c h a n is m s i n s ubnati onal jurisd icti ons an d citi es. “ I m p l e m e n te d ” crediti ng m e c h a n i s m s have the required fram ework (e. g., legislati ve m and ate)
as we ll as the s u pp orti n g procedures, em is s ion reducti on protocols and reg istry syste ms i n place to a llow for cred iti ng to take place.

Y 1 2 3
Whether CORSIA will be a significant source of demand in the longer term remains potenti al levels an d locati ons of s u p p l y a n d d e m an d are uncertain. 9 8 While s o me
unclear. Wh ile a q u ic k recovery f ro m the p an d e mi c wo u ld result i n co mp lian c e ma jo r developed countries, in c l u d i n g the E U a n d the United States, have s ign ale d
ob ligati o n s for airlines i n the sho rt te r m, if the I CAO General A s s e mb ly exten ds the 2019 they wil l not use Arti cle 6 for a ch ie vin g their m iti gati o n targets, a n u mb e r of other
baseline to 2035, w h i c h it is co n si d er i n g d o in g , these ob ligati on s m ay be s ig n i fi ca ntl y countries have already started to develop their Arti cle 6 strategies an d at least 10
reduced. Su c h a n ad justment wo u l d cons id erably d a mp e n the aviati o n sector ’s d e man d countries have already indicated their interest i n u s i n g intern ati o nal m iti gati o n
for credits over the n ext 13 years a n d c o mp ro m is e the in d u st r y ’s climate c o m m i t m e n t s o utcomes to meet their N D Cs . 9 9 Co untries inten d i n g to parti cipate i n the intern ati o nal
further. 94
However, I C A O ’s req uirements are already s h a p i n g the market. A s I CA O ’s carbon credit m ar ke t will, moreover, need ti me to become acquainted with the
Tec h n ic al A d v is o r y B o d y approved eight stan dard s as eligible for C O RS I A purposes, 95
n e wl y set Arti cle 6 r ules an d prepare d omesti c capacity, a d min istrati ve rules, an d
several contract types that track “ CO R S I A - e l i g i b l e cr ed its ” have emerged. Th es e in clu de infrastr uctu re to facilitate tran sfers of mi ti gati o n (see secti on 3.5). Moreover, the
X p a n s i v C B L’s glob al exch an ge p l atf o r m, Global E m i s s i o n Off sets, 9 6 an d A ir Car b o n Arti cle 6 rulebook contains several elements that introduce a diff erent context for
E xc h a n g e C O RS I A E li gib le To ken . T h e credits cur rently b ein g traded do not have co mp lian c e trad in g compared to the Kyo to Protocol. N otably, the rulebook does
co r res po n d in g adju stments, w h i c h wi ll be a requ irement for CO R S I A - e l i g i b l e credits not allow for the b a n k i n g of I T M O s acro ss N D C i mp le mentati o n periods. Questi ons
with vintages f ro m 2021 o nward , to avoid double counti ng. about h ow s u c h elements wil l p lay out fur th er add to the u ncer tainty about h ow the
inter nati on al co mp lian c e ma r ke t m i g h t evolve.
New rules governing international carbon markets have provided certainty that
may lead to growth in these markets in the coming years. At CO P 2 6 i n late 2021,
countries agreed o n rules for intern ati o nal carbon trad in g un der Arti cle 6 of the 3.2 VOLUNTARY CORPORATE COMMITMENTS ARE THE MAIN
Par is Agreement (see secti on 3.5 for fur th er details). Th e s e r ules provide greater
certainty that wi ll help pro gress ex i sti n g collaborati on eff orts an d m ay lead to the
DRIVER OF MARKET GROWTH
development of n ew approaches. Fo r examp l e, Swi tzer lan d , Japan, an d Swe d en , x x x i x
an d m o re recently Repu blic of Korea, 9 7 are already e n ga g i n g wi th potenti al p ar tn ers T h e vo l u ntar y climate targets f ro m the corporate wo r l d are sti ll the m a i n force
to develop tran sacti o n structures. Other related initi ati ves in clu de the Wor ld B a n k b eh in d the in cre as in g d em an d for carbon credits. Th e s e targets s h o u ld c o m m i t to
Tra n sfo r m ati ve Carb on Asset Facil ity a n d the Global Green G row th Insti tute, am bi ti o u s decar b on izati on i n the c o m p a ny ' s own value ch ai n wh ile c o m p e n s ati n g or
wh i c h both receive f u n d i n g th ro u gh var io us gove r n m ents to explore an d set u p n e u t ral izi n g residual emiss io ns . T h e p l an s for ach i ev in g these targets, however, va r y
Arti cle 6 transacti ons an d i mp le me nt c a p a c i t y- b u i l d i n g acti viti es to facilitate the i n ter ms of scope, coverage, ti melin es, an d intended use of carbon credits.
op erati on alizati o n of the Arti cle 6 market. A n imp o r tant d isti n cti o n between the Pa r i s
Agreement an d the Kyo t o Protocol is the extent of n ati o nal c o m mi tme nts . Wh ile o n l y Growing corporate net zero x l commitments are driving demand in the voluntary
developed (o r A n n e x I ) countries h ad climate targets u nd er the Kyo to Protocol, a ny carbon market segment. L a rg e p urchasers i n 2021 ca me f ro m a range of sectors.
co u ntr y c an have a vo lu nta r y climate pledge arti culated i n an N D C un der the b o tt o m - E n e rg y c o mp an ie s , m a i n l y large oil an d ga s fi r m s , led the way i n p u rc h a s in g credits,
u p f ra me wo r k of the Par is Agreement. Therefore, a ny co u ntr y could con ceivably act as in cre as in g their d em an d ninefold compared to the p rev io us year. Fo o d a nd beverage
a buyer or seller i n Arti cle 6 mar kets , d ep end in g o n their needs at a g ive n ti me. an d to u r i s m c o mp an ie s have also p urch as ed credits at h i g h prices, a n d other
co n s u m er goo ds fi r m s are also acti ve buyers. 1 0 0 T h e fi n an cia l sector s i gn i fi c antl y
However, it will take time before the potential size and scale of international increased its carbon credit pu rchases, as b an ks set climate targets for their operati ons
compliance markets is known. While 8 7 % of Parti es to the Pa r is A greement have an d other fi n an cia l insti tu ti on s act as inter med iar ies for corporate clients a n d as
si gn ale d their interest i n parti cipati ng i n the inter nati on al co mp li an ce m ar ke t, the speculators f ro m the market. 1 0 1 T h e 2021 l au n ch of the G la s gow Fi n an ci al Alliance
xxxix Sweden will not use Article 6 credits to m eet its target under the EU NDC but will rather use ITMOs for meeting its national commitment beyond the EU NDC.
xl According to the Voluntary Carbon Markets Integrity Initiative, net zero emissions are achieved when anthropogenic emissions of greenhouse gases to the atmosphere are balanced by anthropogenic removals
over a specified period.

Y 1 2 3
for Net Ze ro, a coaliti on gro u p i n g of fi n an cia l insti tu ti on s rep resenti n g aro u n d The rapid increase in corporate voluntary net zero commitments has led to strong
4 0 % of glob al b a n k i n g assets that have vo lu ntar i ly c o mmitt ed to a state of net zero growth forecasts for carbon credits demand. One recent an al ys is forecasts a 1 5 -
e mi s s io n s , h a s bolstered th is trend. fold increase i n d e man d to 1.5-2 gi gato n s of carbon dioxid e (GtCO 2 ) per year by
2030, an d a 1 0 0 -fo l d increase to 7-13 GtCO 2 by 2050. 1 0 7 Other forecasts s h ow s i m i l ar
The growth in net zero targets has accelerated rapidly over the past years. trends, rea ch in g d e ma n d of 2 GtCO 2 per year by 2 0 30 if the ou tco mes of CO P 2 6 lead
Co rp orati on s ca n vo lu ntar i ly b u y carbon credits to contribute toward me eti n g their
to eff ecti ve coordinati on of glob al vo lu nta r y an d c o mp lia n ce markets. 1 0 8 Un der m o s t
climate targets, to co mp en sate for e m is s i o n s , or to remove unabated emission s.
forecast scenarios, grow th is expected to be dr iven by the in c reas in g n u m b e r of
T h e U N F C C C ’s Race to Ze ro initi ati ve n ow reports 5,235 c o mp an i es have mad e a
corporate net zero c o m m i t m e n t s i n co mb in ati o n wi th an increased s u p p l y of n e w
c o m m i t m e n t of th is type, an d pledges by Global Fo r tu n e 5 0 0 c o mp an i es grew 1 7 %
technologies an d n atu r e- b a s e d soluti ons. x l i i G row th i n d em an d vo l u m e is expected to
between 2 0 2 0 an d the end of 2021. T h e sector level also s h ows p ro g r e s s - n o ta b l y i n
be mir ror ed i n value, wit h s o m e esti mates forecasti n g the m ar ke t to increase 7 - 2 0 %
the Inter n ati on al A ir Tran s p o r t A sso ciati o n recently a n n o u n c i n g a vo lu nta r y net zero
i n value i n one year, to reach a total value of U S D 1.5-1.7 billion i n 2022. 1 0 9
target for the aviati o n sector by 2050. 1 0 2 Un der cur rent p lan s , 1 9 % of the target wil l be
met wi th carbon credits. Philanthropic demand has historically represented a very small share of the
carbon credit market; however, this is a potential growth area if philanthropists
The increasing speed of corporate climate target adoption, combined with a and corporations seek to scale up ne ar -ter m climate finance. T h e s e enti ti es m a y
diversity of net zero terms, xli
claims, and target-setting approaches, is making m a ke vo lu nta r y co ntr ibuti o ns to the goals of the Par i s A greement beyond their o w n
it difficult to distinguish the current role of credits in deep decarbonization. operati ons an d s u p p l y ch ai n s by fi n an ci n g em is s i o n reducti ons. Rath er th an a cq u ir i n g
Du e to the absence of a g lo b all y reco gn ized stan dard, corporate climate p l an s var y th e m an d off setti ng the c o m p a ny ’s G H G em is s io n footprint, they p urch as e carbon
co ns id erably i n ter ms of scope, e mi s s io n s coverage, ti melines , an d intended use of credits a n d reti re them. Fo r examp l e, Pay Pal h a s p u rch as ed carbon credits with ou t
carbon credits for its compliance. T h i s leads to s o me cases where co mp a n ies are m a k i n g co mp e n s ati o n c l a i m s a n d Wal ma r t co mmi tt ed to protecti ng 5 0 m i l l i o n acres
o v e r- r e l y i n g o n carbon cred iti n g to meet their climate targets or s el lin g “ca r b o n of lan d by 2 03 0 with ou t a n off setti ng claim. 1 1 0 Wh ile these contr ib uti o n c l a i m s cou ld
n e u tra l” p ro ducts or services with ou t acco u nti n g for a s ign ifi cant s hare of emiss io ns . represent a g ro w i n g source of d e ma n d for carbon credits an d help create a p io neerin g
One exam p le is the introd ucti on of " ca r b o n n e u tral " liquifi ed n atural gas 1 0 3 a n d oil route for private actors to contribute to the Par is goals , fu rther guidance is needed
products. 1 0 4 Th ere are other exam p l es where c l a i m s could confuse c o n s u m ers , s u c h as to i n fo r m w h e n an d h ow carbon credits ca n be used as part of credible contrib uti o n
the case of Deutsche Post D H L , w h i c h off ers carbon neutral deliveries but less th an c l a i m s that go beyond enti ti es’ value chains. Other c o mp an ie s also conti nue to ap p l y
1 % of the c o m p a ny ’s em is s io n s were off set i n 2020. 1 0 5 I f the wo r l d i s to reach net zero inter nal carbon prices, wi th s o me inve sti n g revenues i n re d u ci n g e mi s s i o n s i n their
by 20 5 0, co mp an ie s m u s t p rior iti ze the d ecar bo nizati o n of their e mi s s i o n p at hways s u p p l y ch ai n with ou t n ecessar ily c l a i m i n g these as credits (see Box 8).
an d seek to co mp ensate (th ro u g h em is s io n redu cti o ns) or neutralize ( th ro u g h
re mova ls ) o n ly residual e mi s s i o n s wi th carbon credits. A n exam p le of th is ap pro ach is
M ae rs k ’s c o m m i t m e n t to reduce its value c h a in e m is s i o n s by 9 0 % th ro u g h inn ovati ve
technologies an d fuels an d to o n ly rely o n carbon credits for 5 - 1 0 % of its res id ual
em is s i o n s to achieve ze ro - c a r b o n s h i p p i n g by 2050. 1 0 6
xli Corporates are using different terms for their climate commitments; others include net zero, zero emissions, carbon free, carbon neutrality, and climate positive, among others.
xlii As the significance of carbon removals is emerging, many market participants call a large part of them “nature-based solutions (NbS).” NbS provide projects that protect, transform, or restore land that absorbs
CO2 emissions from the atmosphere becoming eligible for the issuance and sale of carbon credits. However, and as the International Union for Conservation of Nature defines them, NbS ai m to protect, sustainably
manage, and restore natural or modified ecosystems that address other major societal challenges, such as food security, water security, human health, or social and economic development.

Y 1 2 3
BOX 8 FIGURE 13A
Type and use of internal carbon pricing, based on data from
Internal carbon pricing
CDP
T h e past year h a s seen a moderate increase i n the n u mb er of c o mp an i es repo rti n g the
use of a n intern al carbon price ( I C P ) , but overall uptake r em ai n s limited. Mo ti vati o ns Motivation for implementing ICP
for i m p l e m e n ti n g a n I C P a n d uptake across geograph ies re ma in relati vely u n ch an ge d ,
but n ew trends i n sectoral spread can be seen since last year. T h e wide range of I C P Com p a n ie s 0 20 0 400 600
prices re m ai n s , as does the s m a l l m i n o r i ty of co mp a n ies i m p l e m e nti n g I C P s at prices Drive low-carbon investment 68%
needed to meet the temperature goals of the Pa r is Agreement.
Drive energy efficiency 62%
TYPE AND USE OF ICP Change internal behavior 59%

Identify and seize
Of all c o mp an ie s p u b licl y d is cl o si n g to CDP x l i i i i n 2021, 1 6 % reported that they h a d 48%
low-carbon opportunities
already imp leme nte d a n I C P, an d a fur th er 1 9 % indicated that they have p la n s
Navigate GHG regulations 43%
to i mp le m ent s u c h a price i n the n ex t two years. Of the c o mp an i es that p u b l icly
disclosed to C D P i n both 2 0 2 0 a n d 2021, there h a s been a 1 6 % increase i n the n u m b e r Stakeholder expectations 37%
repo r ti ng the use of an intern al carbon price. Stress test investments 28%
Supplier engagement 12%

T h e m o ti vati o ns for i m p l e m e nti n g an I C P re ma in consistent wi th previous years, wi th
sti m u l ati n g l o w- c a r b o n i nvestme nt an d d r i v i n g energy effi ciency the m o st frequently Other 10%
cited drivers. T h e type of I C P used also refl ects prev io us years, wi th s h ad ow p r i c i n g —
where c o mp an ie s ap p ly an as s u m ed cost to e m is s i o n s associated with a give n
inve stm ent or project, i n order to bett er u nderstan d their climate i m p a c t s — s ti l l
Type of ICP
rep resenti n g by far the m o s t c o m m o n type of price applied.
Companies 0 20 0 400 600
ICP ACROSS SECTORS AND GEOGRAPHIES
S hado w price 67%
T h e uptake of I C P s across geograp h ies s h ows n o maj o r ch a n ge, wi th Eu ro p e an d
Implicit price 21%
A s ia an d Pacifi c co nti n u in g to h o st the h igh e st n u m b e r of co mp a n ies rep or ti n g the
use of a n ICP. T h e past year h a s, however, seen a ch an ge i n sectoral trends, with the Internal fee 17%
service sector over taking the en ergy sector as the i n d u str y wi th the h i gh est n u m b e r of
Offsets 13%
co mp a n ies i m p l e m e n ti n g a n I CP.
Other 8%
PRICING
In t e r n a l trading 2%
Reported I C P s range anywh ere between U S D 0.8 a n d U S D 6,000/tCO 2 e. T h e maj o r ity,
however, re m ai n below the U S D 50 -1 00/tCO 2 e price that leadin g eco no mists s ay is
needed to meet the temperature go als of the Par is Agreement. Of the a p p rox imate 9 5 0
co mp an ie s d is clo s i n g their I C P s to C D P, 6 8 % cur rently i mp le m ent a price of U S D 50/
tCO 2 e or below, a n d a fu rther 1 8 % i mp le m ent a price between U S D 5 0 an d U S D 100/
tCO 2 e. Fewer th a n 100 co mp an ie s disclose that they are cur rently i m p l e m e n ti n g a
carbon price of over U S D 100/tCO 2 e.
xliii See CDP website for further details: https://www.cdp.net/en

Y 1 2 3
FIGURE 13B 3.3 CARBON CREDIT MARKET GROWTH IS UNEVEN,
Uptake of internal carbon pricing, based on data REFLECTING DIVERSE BUYER PREFERENCES
from CDP
D e man d preferences and buyers’ needs conti nue to incenti vize a spectrum of alternati ves
for carbon credits with diff erenti ated prices across project types, geographies, and c o -
Uptake across sectors
benefi ts. A h i gh light this year is the increased interest in forest and land use-b as ed
Com p a n ie s 0 50 100 150 20 0

2 50 credits.
Services 26 %
Carbon credit prices have risen sharply, though prices continue to vary across
Materials 17% different types of credits. T h e mar ket for credits f ro m independent cred iti n g
Manufacturing 17% m e c h a n i s m s is heterogeneous, with b uyers p la ci n g a ran ge of values o n
characteristi cs s u c h as the sector (e.g., type of acti vity), geo grap hy, age/vintage,
Infrastructure 9%
a n d c o -b e n e fi ts of credits. Wh ile recent years have seen s o m e m ove s toward
Fossil fuels 6% o ff er ing standard ized contracts (see secti on 3.4), prices var y widely, wit h trad i n g
Power generation 6% p l atf o r ms o ff erin g contracts representi n g credits f ro m diff erent sectors. Fo r in stance,
a ss es sm ents by S & P Global Platt s s u g ge st that r e m o va l - b a s e d credits were priced well
Food, beverage & agriculture 5%
above credits f ro m renewable e n e rg y- b a s e d projects (see Figure 14).
Retail 5%
Transportation services 4%
FIGURE 14
Biotech, health care & pharma 3%
Prices of standardized carbon credit contracts x l i v
25
Uptake across geographies
Ave ra g e ca r b o n credit p r ice ( U S D )

Companies 0 50 100 150 200 250 300 350
Europe 39% 20
Removals
Asia & Pacific 35%
North America 18%

15
South America 5%
Africa 3%
10 Nature Based
Avoidance
Renewable Energy
5 CORSIA Eligible
0
Q1 Q2 Q3 Q4 Q1
2021 2022
xliv Source: Based on data from S&P Global Platts, 2022 by S&P Global Inc.

Y 1 2 3
However, increasing interest in removals has not yet translated into high
CORSIA eligible refl ects carbon credits eligible for the Intern ati o nal C iv i l transaction volumes. A cco rd in g to Ec o system Marketplace, i n 2021 the traded vo l u m e
Av iati on O rgan izati o n ’s C O R S I A p ro g ra m (Platts CEC asses sment). of credits f ro m red u cti o n -b as e d projects i n the vo l u ntar y carbon ma r ket wa s 21
ti m es h igh e r th a n the traded vo l u m e of credits f ro m r e m ov a l - b a s e d projects. Tw o
Renewable energy refl ects renewable energy carbon credits that avoid G H G factors like ly exp la in the m ar ke t d o mi n an ce of red u cti o n -b as ed carbon credits. Fi rst,
e mi s s i o n s (Platts CNR asses sment). i nfo r m ati o n o n r e m o v a l - b a s e d credit tran sacti o ns m ay not be available or recorded
i n the mar ket, as co mp a n ies are star ti n g to develop these projects th ems elves (see
Nature based refl ects n at u re -b as e d carbon credits f ro m projects that either secti on 3.4 for mo re detail). Second, it is possible that s u p p ly of re m o va l - b a s e d
avoid or remove G H G e mi s s i o n s (Platts CNC ass es sment). credits is cur rently l imite d due to the lo n g lead ti mes for these projects to produce
credits. Co mp a n i es are also facin g diffi culti es fi n d i n g carbon credits f ro m m e d i u m -
Avoidance i s a basket as s es s m ent that refl ects carbon credits f ro m projects a n d l o n g - t e r m rem ova l projects, wh i c h guarantee that em is s i o n s w ill be stored for
that avoid G H G emission s. T h i s in clu des the P latt s Ho u s e h o ld Devices, P latt s m o re th an 100 years. 111
I n d u str ia l Pollu tants , an d P latt s N at u r e - B a s e d Avoidan ce as s es s m ents (Platts
CAC asses sment). Forest and land use credits are closing the gap on renewable energy credits in
terms of credit issuance. Carb on credit issu an ces f ro m forestr y an d l a n d - u s e projects
Removals is a basket as s es s me nt that refl ects carbon credits f ro m projects that increased 1 5 9 % over the past year, acco u nti n g for mo re th an a th i rd of total credit
remove G H G em is s i o n s f ro m the atmosphere. T h i s in clu des the Platt s N atu ral iss uances i n 2021. x l v i i A ro u n d 7 0 % of these credits were generated i n Asia, p r i ma r i l y
Car bo n Capture an d P latt s Tec h n o lo gic al Car bo n Capture as s es s me nts (Platts i n Ca mb o d ia, I n d o n e si a, an d C h i n a, wi th m o st of the re main d er generated i n L a ti n
CRC ass essment). A me r ica , led by projects i n B ra z i l an d Peru. A l th o u gh m o s t of these credits come f ro m
projects to avoid e m is s i o n s f ro m deforestati on an d lan d use co nversion , projects
More detail about the P latt s’ diff erent as sess m e nts c an be found i n P latt s’ S pecifi cati on
Guide: htt ps :/ / ww w. spg lobal. com /com m odit yins ig hts/ Platt sC onte nt/ _ asse ts/ _fi les /en/our- to remove atmo s p h er ic e m is s i o n s ( s u c h as aff orestati on, carbon sequestrati on i n
m et hodolog y/ m et hodolog y- spe c ifi c ati ons/ m e thod_c ar bon_c re dit s.pdf. agricu lture, an d imp roved forest m a n a g e m e n t) contributed to a fi ft h of th is growth.
Wh ile forest a n d lan d use credits have lo n g been at the center of p olarized debates
re gard in g add iti o nality, p ermanence, an d baseline accuracy, 1 1 2 these projects are
The demand for removal-based credits is causing prices for these units to rise. ga i n i n g po pu lar ity as mo re bu yers adopt net zero targets that depend o n re movals
H i g h d em an d d riven by the special role removals are set to p lay i n me eti n g net zero to n eu tralize the e m is s i o n s that cann ot be reduced. H owe ve r, mo rato r iu ms o n the
targets xlv
an d techno lo gical feasibility challenges that l i m i t cu rrent s u p p ly like ly development of carbon projects, s u c h as the m o rato r iu m o n Re d u c in g E m i s s i o n s f r o m
exp la in the h i g h price as s ign e d to re m o va l - b a s e d credits. A cco rd i n g to S& P Global Deforestati on a n d Fo rest D egrad ati on ( R E D D + ) projects i n Pap u a N ew Guinea 1 1 3 a n d
P latt s, despite a 9 % fall i n price between Fe b r u ar y an d M arc h 2022, x l v i r e m ov a l - b a s e d the mo rato r i u m i n Fu j i an P rovince i n C h i n a is sued o n NbSs, 1 1 4 have raised co ncer n s
credit prices increased by 4 8 % i n the past s i x m o nt h s , r i s i n g to U S D 19/credit i n that other region s wi ll fo llow s uit, s h r i n k i n g s u p p ly an d c au s in g price surges.
M arc h 2022, whereas credits that reduce or avoid e m is s i o n s were s old for o n l y 4 0 % Renewable energy credits re m ai n , by a s m a l l m a rg i n , the m o s t ab und ant credits i n
of th is price (see Figure 14). the market. T h e y also off er s o me of the cheapest prices. 1 1 5 T h e two majo r independent
cred iti n g m e c h a n i s m s (Verifi ed Carb on Stan d a rd an d Gold Sta n d ard ) have s in ce 2 0 2 0
xlv Net zero is taken to b e as per the Intergovernmental Panel on Climate Change definition: “human activities to result in no net effect on the climate system would require balancing residual emissions with
emission removals.”
According
xlvi to market observers, this price drop might b e attributed to the uncertainty faced by the beginning of the war in Ukraine. More recent data suggest that, as of April 2022, prices of nature-based carbon
credits have started to rebound. See R. Manuell, M. Tilly, and S. Reklev, “VCM Report: Nature-based VERs Continue Rebound after Bearish ‘Blip’ in March,” Carbon Pulse, April 11, 2022.
xlvii Forestry and land -use project types include afforestation/reforestation, avoided deforestation, improved forest management, avoided conversion, reduced emissions in agriculture, carbon sequestration in
agriculture, and wetland restoration. Climate Focus, “The Voluntary Carbon Market Dashboard,” 2022,

Y 1 2 3
o n ly accepted registrati o ns of n e w l a rg e - s c a l e renewable en ergy projects located i n is refl ected i n the price increases for credits f ro m project types considered to off er
least developed countries due to these projects elsewhere not re q u ir in g carbon fi n an ce broader co -b en efi ts , i n c lu d i n g forestry a n d la n d use an d h ou seh old en ergy effi ciency
to be ec o no mica lly feasible. Sti ll , several projects registered before th is date have project types, s u c h as i mp rove d cookstoves. 1 1 8 Ve r ify i ng these c o - b e n e fi t c l a i m s is
sin ce increased their iss uances substanti ally. xlviii imp o r ta nt, an d there are in c re as in g eff orts to develop tools to validate th e m i n a n
objecti ve manner. So me eff orts seen i n the m ar ke t in clu de A ir Car b o n ’s Sustainable
Projects in Asia, Latin America, and the Caribbean have supplied the majority of D evelo pment To ke n , x l i x Ver ra’s Sustainab le D evelo pment Verifi ed I m p a c t Sta n d ard
carbon credits. Acc o rd in g to Eco syste m Marketplace, traded vo l u m e s of credits f r o m program, 1 1 9 an d Gold Stan d a rd’s S D G I mp a c t Tool. 1 2 0
projects located i n As ia mo re th an doubled i n the past year, rep resenti n g 5 6 % of the
total credits transacted i n the m ar ke t i n 2021 due to vo l u m e s of renewable energy an d
forestry a n d lan d use credits, p re d o m in antl y f ro m Camb o d i a an d Indonesia. A lth o u g h FIGURE 15
credits f ro m A s ia have off ered the lowest prices, these increased f ro m U S D 1.60/ Multilayered purchaser decisions shape diverse markets and
tCO 2 e i n 2 0 2 0 to U S D 2.97/tCO 2 e i n 2021. 116 Credits transacted f ro m L a ti n A mer i ca an d prices
the Caribbean accounted for 2 2 % of total trade, d ominated by forestry an d lan d use
credits. Credits f ro m Afr ica represented 1 5% of the total, with transacted vo lu me s of
credits f ro m the regio n reac h in g their h igh e st levels yet, with prices also i n crea si n g
f ro m U S D 4.24/tCO 2 e i n 2 0 2 0 to U S D 6.09/tCO 2 e i n 2021.117
Voluntary mar ke t purchasers tend
to h a v e m o r e diverse
Market heterogeneity is increasing, fueled by the diverse preferences and needs of preferences t han compliance C om pl ia n ce o r voluntary?
purchasers
buyers. I n the context of s ign ifi cant grow th i n vo lu ntar y c o m m i t m e n t s an d in c reas in g Purchasers seeking to offset
diversity of b uyers wi th diff erent prioriti es an d reasons for p u rch as i n g credits, their emissions m a y b e m o r e likely to
s e e k credits with corresponding C ont ributi on or com pens ati on?
vo lu ntar y b u ye rs ’ p u rch as i n g d ecision s are likely to be in creas in gly heterogeneous, adjustments
with diff erent b uyers p r i o r iti zin g price, qu ality, integr ity, an d other characteristi cs Purchasers seeking credits to comply with net ze r o
strategies a r e m o r e likely to prioritize
diff erently. B u ye rs ’ opti o ns i n inter nati on al co mp l ian ce m ar ke ts are, for the m o s t removing
part, mo re l imite d because of the req uirement to source o n ly carbon credits with a t mo sp h eric ca rb o n over a v o i d ed emissions
a c o r res p o n d i n g adjustment. Figure 15 illustrates the m a i n p u rch a se rs ’ decis io ns
s h a p i n g the market. Re mo va ls or reducti ons?
Consumer-facing companies a r e m o r e
likely to s e e k credits f r o m
The market is evolving to highlight other benefits of credits beyond GHG emissions
“ ma rk et a b le ”
mitigation and to develop tools to verify them. Fo r examp le , so m e c o - b e n e fi ts that projects with multiple c o -
pu rch asers value relate to wh eth er the u n d e r l y i n g project contributes to ach ie v in g b e n e f it s
one or mo re of the Su stain able D evelop ment Go als ( SD G s ). Credits with S D G benefi ts C o - b e n e fi t s o r le ast c o s t ?
are att racti ve to b uyers as they off er a n op po rtun ity to m a ke additi onal contrib uti on s
to sustainable development an d for those co ntr ibuti ons to be recognized i n the
social an d econ omic agenda. F r o m project developers’ perspecti ve, s u c h credits
increase the potenti al to obtain price p r e m i u m s i n the market. T h i s mar ket d y n a m i c
xlviii However, projects validated and submitted for project registration prior to December 29, 2019 are still eligible under the VCS for their full crediting periods.
xlix Each SDT represents a carbon emission unit accompanied by additional certifications or registry approved labels for sustainable development benefits that have b een reviewed by third parties: AirCarbon,
“Exchange Tradable Assets.”

Y 1 2 3
3.4 NEW FINANCIAL SERVICES AND TECHNOLOGIES ARE exc h an ges are i n crea si n gly o ff er ing stan dard ized contracts that ensure co mp li an ce
ENTERING CARBON CREDIT MARKETS wi th qu ality criteria for n at u re -b as e d , energy, or h ou seh old device carbon projects.
Greater stan d ard izati o n c an b r i n g mo re transp arency an d liq uidity by facilitati ng the
Ra p i d l y g ro wi n g credit d em an d is en c o u ragin g n e w players to enter the ma r ket a n d generati on of accurate mar ket data. However, it also increases the r i s k of var io u s
fo rcin g mar ke t p layers to fi n d creati ve ways to adapt to n ew d y n ami cs . At the s a m e projects being l u m p e d together un der a larger type of contract, th u s b l u r r i n g the
ti me, the ma r ket ’s f ra gmented an d decentralized nature conti n ues to raise ch allenges diff erences between them. Fi n a l l y, greater stan d ard izati o n wo u ld also open the
i n e n s u r i n g trans paren cy an d liquidity. door to speculati ve practi ces that could u lti mate ly be a m ajo r dr iver of carbon credit
m ar ke t grow th but also volati lity. 1 2 5
The role of financial actors in carbon credit markets has grown considerably in
the past year. Fi n an ci al actors are in creas in gly involved at the imp lem entati o n Trading dynamics are changing, led by companies with long-term commitments
phase of carbon projects, p rov i d i n g capital an d r i s k- h e d g i n g m e c h a n i s m s to project seeking ways to secure future offsetting needs. I n 2017, vo lu me s of credit
developers w h o previou sly h ad to rely p r i m a r i l y o n equity a n d g rants for their u pfront reti rements were s i m i l a r to reported vo l u m es for tran sacti o ns, but two years later
investments. 121
Fi n a n c ia l players are also i n crea s in gly a cti n g as intermed iar ies for reported tran sacti on vo l u m e s were nearly 4 0 % h ig h e r th an reti rement volumes. I n
vo lu ntar y carbon credits transacti ons. I n recent years, the in sti tuti o nal land scap e 2021, reported transacti on vo lu me s were 1 2 9 % h i gh e r th an reti rement volumes. 1 2 6 I n
of carbon credit m ar ke ts h a s c h an ged s ig n ifi ca ntly wi th the creati on of n e w a r i s i n g price context, th is g ro wi n g diff erence between tran sacti o n an d reti rement
carbon exch a n ges , the m erger of p reexisti n g ones, 122
a n d the entr y into the ma r ket s u g g ests that bu yers are i n crea si n gly m o v i n g toward l o n g - t e r m b u y i n g to secure
of other fi n an cial en ti ti es — s u c h as c o m m o d i ty exc h an ges or b a n k s — t h at were future needs or resell at a h i gh e r price later. One wo u ld expect the price a n d the
not o r i gi n a ll y l in ke d to carbon markets. 1 2 3 Th es e n ew p layers provide a range of vo lu m e of for ward contracts traded to refl ect th is transiti on toward l o n g - t e r m
services i n c lu d in g trad in g p latf o r ms , derivati ves, an d carbon q uality standards. T h i s b uyin g. However, th is is not the case: Available mar ket data f ro m Ec o system
f u n d am enta ll y ch an ge s the nature of tran sacti o ns by intro d u cin g n ew m e c h a n i s m s Marketplace s u g g ests that spot contracts sti ll do min ate the m ar ke t, w ith near ly s i x
for price determinati on. T h e prices of standard ized contracts are in c reas in gl y used as ti m es mo re vo l u m e traded th an for ward contracts, an d for ward contracts re ma in
b e n c h m ar ks , c o mp an ie s have b egu n to develop price a ss e s sm ents for diff erent types s l i ghtly cheaper th a n spot contracts ( U S D 3.57 an d U S D 4. 08, respecti vely, as of the
l
of carbon credits, an d portf olio aucti ons for carbon credits have emerged. li th ird quarter of 2021). 1 2 7 One reason for th is m i g h t be that cur rently available m ar ke t
data do not capture specifi c types of deals that involve future purchases. I n s u c h
New players and financial services are moving the carbon credit market toward deals, b ig corporati ons par tner wit h project developers an d provide capacity an d
greater standardization, raising both opportunities and challenges. Tra n s a cti o n u pfro nt investm ent i n carbon projects to secure future carbon credits an d eventually
data f ro m stand ard ized contracts l i i are scarce an d scatt ered, m a k i n g it diffi cult to sell extra credits to m a ke a profi t. Fo r instan ce, i n late 2021, m u lti p le joint ventures
assess their real i mp o r tan ce i n the market. While o v e r- t h e - c o u n t e r tran sacti o ns between capital prov iders a n d developers anno un ced the development of n ew n at u r e -
re m ai n the n o r m i n carbon credit mar kets , available ind icators s u g gest that, i n based projects, wi th s o me representi n g large fi n an cial values an d iss uance volumes. 1 2 8
recent years, stan dardized tran sacti o ns have g ro w n sign ifi cantly. Fo r exam p le, i n
2021 the total vo lu m e of carbon credits traded o n one of the m ajo r carbon exc h an ges ,
the X p a n s i v C B L exch a n ge , exceeded 121.5 m i l l i o n , a n increase of 2 8 8 % f ro m
2020. 1 2 4 T h e s u p p l y of standard ized contracts h as also diversifi ed. Fo r examp l e,
l See for instance S&P Global, “Platts Carbon Credit Assessments”; and Nasdaq’s recently launched carbon removal indexes: Nasdaq, “Nasdaq Launches World’s First Carbon Removal Indexes,” March 24, 2022.
li For example, in November 2021, the global carbon credit exchange and marketplace Climate Impact X (CIX) conducted a first-of-its-kind portfolio auction of voluntary nature-based carbon credits: DBS, “CIX
Completes First-of-its-Kind Portfolio Auction of Voluntary Nature-based Carbon Credits with Leading Global Companies,”November 4, 2021.
lii Standardized contracts refer to transactions involving packages of carbon credits with certified c o m m on characteristics (project type, vintages, and/or issuing standards) and sold as standard products by carbon
exchanges. Standardized contracts can b e distinguished from (nonstandardized) over-the-counter transactions.

Y 1 2 3
The development and diffusion of new technologies, in particular blockchain-
related technologies, is shaping trading practices in carbon credit markets. While BOX 9
the m o b i l izati o n of b lo ckch ain h as gain ed tracti on i n recent years, the past year h as
seen the emergence of a n ew p h e n o m e n o n with eff orts to m a ke carbon credit ma r ke ts
What is tokenization?
interoperable w ith decentralized fi nance. Decentralized fi n ance allows p e e r - t o - To ke n i zati o n is the process by wh i c h a n issu er creates a digital representati on
peer fi n an cia l trans acti o ns witho ut th ird parti es, enabled by cr yptocur re ncy, s m a r t of s o me th i n g of value o n a distributed ledger or b lo ckch ain , w h i c h
contracts, a n d other digital tech no lo gy innovati ons. represents either d igital or p hys ica l assets. To ke n s c an o n ly be so ld or
transfer red by their owners , e n s u r i n g they represent u niqu e a n d unforgeable
While the use of these technologies in carbon credit market transactions will likely representati ons. To ke n s m ay also confer gover nance r ig hts to users, d ictati ng
continue to grow, it is critical to understand and address the potential risks before h ow they s h o u l d be used an d wh at type of i nfo r mati o n sh o u ld be encoded
they are fully embraced. T h e d ep loyment of these n ew technologies h a s the potenti al wi th them. M a ny b lo ckch ain p latf o r ms have developed stand ards to help
to help scale u p the carbon credit mar ket an d break d own silos between registr ies ensure interoperability acros s p latf o r ms a n d tools, as well as to pro mo te
wh ile p rov id in g traceability, liqu id ity, security, an d trad i ng effi ciency. However, they secu rity properti es of the token. Carb on tokens c an incorporate provenance
m ay also provide opportuniti es for d estab il izi n g speculati ve practi ces an d add a n data an d info r m ati o n about h ow the token m ay be used or traded, w h i c h h a s
additi onal layer of co mp l ex it y i n a mar ket that i s already inten sely fragmented. 1 2 9 I n been provided by the issuer.
co mp l ian ce mar kets , these technologies are also being explored to ensure that
e mi s s io n reducti ons or removals are accounted for p ro per ly, avo id in g “g r e e n w a s h i n g ” I f tokens are created th ro u gh a stan dard ized process, their increased
acti viti es outside th is market. Nevertheless, these n ew practi ces have gain ed tracti on accessibility can imp rove tracti on a n d su pp or t overall m ar ke t liquidity.
an d att racted the att enti on of m ajo r carbon credit m ar ke ts players. Wh ile the use of I nfo r m ati o n about the m ove me nt of carbon tokens as they are traded c an
b l o c kc h a in -b a s e d structures for c o mp lia n ce ma r ket s h a s been in crea sin gly explored be mad e visible an d tracked, in c l u d i n g wh e n the token is reti red a n d c an n o
for s o me years now, 130 the Inter n ati on al E m i s s i o n s Tra d i n g A sso ciati on h as recently lon ger be transacted. I n th is context, wh en a token i s marketed as p rov i d in g
fo rmu lated a set of in iti al re co m men d ati o n s an d laun ch ed a Ta s k Fo rce o n Di gi tal the im p a ct a carbon credit represents (i.e., a G H G reducti on or re m oval ) it
Clim ate Assets to explore an d wo r k o n guidelin es for b l o c kc h a in - b a s e d carbon m u s t be ind epend ently verifi ed again st a set of r ules an d requirements. T h i s
markets. 131
process a i m s to guarantee that a ny token billed as red u c in g or off setti ng G H G
e mi s s i o n s h a s all fu n d a mental att ributes of carbon credits, s u ch as n a m e l y
The automated processes embedded in blockchain networks encourage rapid, but real, additi onal, p er m an e nt, ro bu stly quanti fi ed, ind epen dently verifi ed, or
not always smooth, technological and financial innovation. Di gital infrastru cture u n iq u e ly claimed.
projects like the To u c a n Protocol have provided a o n e - w a y “ca r b o n b r i d ge ” for
to ke n iz in g carbon credits, by b u y i n g a n d reti ring mo re th an 18 m i l l i o n credits
f ro m the Verra registry wh ile i s s u i n g n ew ( n oti o n all y equivalent) o n - c h a i n assets
called “ B a s e Carb on To n n e s .” I n tu r n , to kenizati o n th ro u gh the To u c a n Protocol
h a s enabled eff orts s u c h as K l i m a DA O, a decentralized au to n o m o u s o rga n izati o n
a i m i n g to accelerate price appreciati on of carbon assets. Wi th i n weeks of its la u n ch The entrance of new financial services and technologies into carbon credit
i n N ovemb e r 2021, K l i m a D A O acquired over 9 m i l l i o n to kenize d carbon assets, 132
markets has drawn criticism, resulting from the perceived potential to obscure
but trig gered controversy w i t h i n its developer an d user c o m m u n i t y aft er br idgin g liii integrity and quality in decentralized carbon markets. A n u m b e r of eff orts,
verifi ed carbon u n its f ro m a project type that w as discredited i n the early 2010s, a in cl u d in g the Wor ld B a n k ’s Clim ate Warehouse initi ati ve, are a i m i n g to d emo nstrate
hydrofl uo rocar bon destr ucti on project i n Yi n g p e n g , China. 1 3 3 the viab ility of decentralized approaches to c o n n ec ti n g carbon mar kets , wh ile
liii Bridging refers to the process of retiring a carbon credit on the originating parent registry and
creating an un-duplicable digital representation of that credit through a blockchain-based
process.

Y 1 2 3
en h a n ci n g tran sp aren cy a n d trust. 1 3 4 I n additi on, b lo c kch ai n techno logy co mp a n ies BOX 10
are att e mpti n g to imp rove the perceived qu ality of credits b ro u ght to the ch ai n by
restr icti n g access to old vintages 1 3 5 a n d e mi tti n g tokenized u n its fo ll owin g specifi c
The finalized Article 6 Rulebook provides r oom for
qu ality criteria. 1 3 6 So m e p ublic registries have sug gested that s i m p l y i s s u i n g a token flexibility in voluntary transactions
does not confer legal r i ghts to the u n d e r ly in g credit or i m p ac t that a token is stated to T h e fi n ali zed Arti cle 6 rules provide fl exibility to project h ost countries
represent. 1 3 7 Fo r in stance, the Gold Stan d a rd Re gi st r y stressed that the registr y of the i n h ow vo lu ntar y carbon mar ket tran sacti o ns ca n take place. Th e s e m ay
stan dard that is sued the credit is the “s o u rce of t r u t h ” for the status of that credit. 138
ran ge f ro m not re q u ir in g co r res p o n d in g a d ju stments for u s i n g carbon
I n additi on, it h igh li ghte d that a ny seco nd ar y ma r ket, b l o c kc h a in -b as e d or otherwise, credits for vo lu nta r y c o m m i t m e n t s to a blanket requ irement for Arti cle 6
needs to c o m p l y wi th the i s s u i n g sta n d ard ’s te r ms a n d cond iti ons to ensure legal a u th or izati o n an d thereby the ap plicati o n of a c o r res p o n d in g ad justment
own e rsh ip of the credit an d c o mm u n ic ate a ny ch an ge i n status of the credit back to for a ny carbon credit that is transferred out of the jurisdicti on.
the registr y 139
—a statement echoed i n I E TA ’s reco m men d ati o n s o n the use of d igital
climate assets. 1 4 0 A n u m b e r of countries have already co mmi tt ed to the pr incip le of
co r re s p o n d in gl y ad ju sti n g carbon credits certi fi ed un der independent
stand ards a n d used by corporate actors for vo lu ntar y climate c o m m i t m e n t s ,
3.5 THE GOVERNANCE OF CARBON MARKETS CONTINUES TO led by a gro u p of countries that si gn ed o n to the S a n José Principles. l i v
So m e countries have also already co mmi tt ed to a p p l y i n g co r re s p o n d in g
EVOLVE
ad j u stm ents for i n d iv id u al projects, l v a lth o u gh s u c h c o m m i t m e n t s do not
represent a streamlined c o u ntr y strategy for c o r res p o n d in g ad j u stme nts
Governance f ra me wo r ks are e m erg in g that seek to p romote integrity an d clar ity i n an yet. Other countries have been reluctant to c o m m i t to c o r res p o n d i n g
in cre as in gly c o m p l ex an d diverse market. T h e s e come alon gsid e the adopti on of r ules ad j u stm ents for credits used i n the vo lu ntar y carbon market.
un der Arti cle 6 of the Par i s Agreement.
Six years after Paris, at COP26, attending nations agreed on the modalities,
procedures, and guidelines for implementation of carbon markets under Article
6 of the Paris Agreement. Th es e rules represent a ma jo r milesto ne, creati n g a path
for inter nati on al carbon ma r ke ts to contribute to me eti n g N D C go als an d sup po rt
s c al in g u p climate a mb iti o n th ro u g h vo lu nta r y cooperati on. T h e share of parti es
in d ic ati n g plan ned or possible use of vo lu ntar y cooperati on m e c h a n i s m s u nde r Arti cle
6 h as nearly doubled, f ro m 4 4 % to 8 7 % i n the n e w or updated N D C submissions. 1 4 1
A cco rd in g to a n an al ys is carr ied out by I E TA , i m p l e m e nti n g N D C s cooperati vely
rather th a n ind ep end ently th ro u gh Arti cle 6 could save gove r n me nts mo re th an U S D
30 0 billion per year by 2030. 1 4 2 So m e countries have already initi ated pro cu rement of
e mi s s io n reducti on credits i n th is context. T h e Arti cle 6 rules agreed u p o n i n G la s gow
ex p lici tl y embrace the diversity of carbon markets. Und er the n e w rules, gove r n me nts
wil l be able to decide the type of projects that wi ll be developed i n their countries a n d
have control over wh ether to author ize the em is s io n s reducti ons f ro m those projects
liv The San José Principles Coalition recommitted after COP26 to Principles for High-
(see Box 10). T h i s decision is likely to lead to fur th er divergence i n approaches, credit Integrity Carbon Markets, including to corresponding adjustments for all compliance
types, an d prices. uses, as well as applying corresponding adjustment to support voluntary corporate
climate commitments. The endorsers include Colombia, Costa Rica, Fiji, Finland,
Marshall Islands, Peru, and Switzerland.
lv Including Nepal and Rwanda.

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How purchasers and host governments prioritize corresponding adjustments will Despite the consensus that carbon credits will play a role in corporate
significantly shape market transactions of carbon credits. So me g ove r n m e nts m ay decarbonization, their role must also balance the need for direct action by
be predisposed to absorb as m a n y of the l ow e r- c o s t e m is s i o n reducti on oppor tuniti es businesses to reduce emissions. A recent an al ys is of net zero targets fo u n d that
for their ow n N D C s before a ll owi n g co r re s p o n d in g ad justment for car bon credits headline targets are oft en am b i gu o u s , e m is s i o n reducti on c o m m i t m e n t s are limi te d ,
f ro m independent standard s an d exp o r ti n g the abatement outcome. On the other a n d corporate p la n s to off set their e m is s i o n s are quite controversial. 1 4 6 T h e research
h a n d , fo cu s in g on h o sti n g projects witho ut c o r res p o n d i n g ad j u stme nts wo u l d allow pointed to, a m o n g others, ma jo r oil co mp an ies c l a i m i n g fo s s i l - b a s e d acti viti es as
gove r n me nts to leverage vo lu ntar y c o m m i t m e n t s an d att ract investments to help carbon neutral by r el y in g o n carbon credits. So me env iro n me ntal gro ups are p u s h i n g
achieve their N D C s , th o u gh these credits m ay be less att racti ve to buyers. for g over n m e nts to set stro nger regulati o ns o n the d e ma n d side to encourage
corporati ons to invest i n in n ovati o n an d accelerate decarbonizati on. Ci v il society an d
Given the capacity and information needs for host countries, project developers, c o n s u me rs are in cre as in gly e x a m i n i n g the carbon n eu trality c l a i m s of corporates
and carbon credit buyers to adapt to new Article 6 infrastructure, it will take time a n d i n s o me cases fi lin g laws u its citi n g mi s le ad in g cl ai ms , s u c h as the case of A r la ’s
for Article 6 to become fully operational. Fo r project ho st countries, develop in g a n carbon neutrality c l a i m reported by the Swe d i s h C o n s u m e r Agency. 1 4 7
intern ati o n al carbon credit mar ket strategy requires extensive knowledge, capaciti es,
an d infrastru cture to un derstan d h ow parti cipati on i n the inter nati on al carbon There remain significant debates about how to ensure the quality and integrity
mar ket contributes to a ch ie vin g their m iti gati o n targets. Fo r project developers, the of carbon credits. T h e fu n d a mental ch allenge is that the climate benefi ts f ro m
e me rgi n g context of f ragme nte d an d interacti n g ma r ket s m e a n s that they need to carbon credits c an o n ly be esti mated a ga in st a reference scenario, never observed. 1 4 8
deal w ith diff erent strategies an d req uirements i n diff erent h ost countries. Se c u r in g E n s u r i n g integr ity requires a stro n g additi o nality c a s e — w h i c h is extrem ely d iffi cu lt
a c o m m i t m e n t to co r re s p o n d in g ad ju stments f ro m h ost countries for their projects to operati onalize acros s project t y p e s — a n d robust an d conservati ve baselines an d
m ay require a n extra step, w h i c h m ay i m p l y lon ger ti mel in es for project develo pment q uanti fi cati on of e m is s i o n reducti ons or removals. Fo r exam p le, concerns l v i i have
an d implementati o n. A n u m b e r of project developers have already secured s u ch a been raised re gard in g I C AO ’s recent acceptance of H i g h Forest L o w Deforestati on
c o m m i t m e n t to co r res p o n d in g ad j u stm ents f ro m h ost co u ntr y gove r n me nts i n w h i c h ( H F L D ) credits un der the Architecture for R E D D + Tra n s a cti o n s stan dard as eligible for
lvi
their projects are situated. CORSIA. 1 4 9
The flexibility provided by the Article 6 rules gives the voluntary carbon market A range of initiatives are emerging to address ongoing integrity concerns by
more scope to scale quickly, but carries risks. U n le s s c o n s u m e rs an d investo rs guiding the supply and demand toward high-integrity credits and net zero
can navigate te r mi n o lo gy an d diff erenti ate project cl ai ms , the ma r ke t ’s fl exibility strategies. T h i s in clu des the Integr ity Co u n cil for the Vo lu ntar y Car bo n Market, a
could facilitate greenwashing. 1 4 3 T h e diff erent b ifurcati o ns m ay create ad diti on al p r i v ate - s e c t o r- l e d initi ati ve w o r k i n g o n s c al in g u p the transacti ons for vo l u ntar y
un cer tainty for b uyers o n id enti f yi n g wh i c h credits or off sets they can credibly c l a i m c o m m i t m e n t s by p ro mo ti n g h i g h - q u a l i t y credits a n d stan d ard izati o n of contracts
a m o n g their climate c o m mi tme nts . I n co n s istent c l a i m s o n the role a n d le giti m acy of to im p rove liquidity. l v i i i T h e Integr ity Co u n ci l for the Vo lu nta r y Car bo n M ar ket ’s
credits m ay confuse a n d discourage potenti al vo lu ntar y p u rch asers, especially retail P hase I I report contains guid an ce for estab lis h i n g a glob al gove r n in g body for
cu stomers, w h i c h could cloud tran sp arency an d d amp e n demand. 1 4 4 M a ny observers, vo lu ntar y carbon trans acti o ns, sta n d a rd i zin g the legal f ra me wo r k for the mar ket, an d
p ar ti cu lar ly in sti tu ti on al investors, sti ll prefer a mo re u n i fo r m carbon credit ma r ket, i m p l e m e n ti n g core carbon p rin ciples for credit integrity. l i x
to m i n i m i ze ineffi cient fragme ntati o n a n d consolidate liq uid ity arou nd a s m a ll er set
of c o m m o n l y understood credit types. 1 4 5 G etti n g the balance r ig ht w il l be a m aj o r
deter minant of the l o n g - t e r m scale an d s ucces s of carbon markets.
lvi These include Atmosfair, a German nongovernmental organization, which signed deals with Nepal for corresponding adjustments for credits from its projects. Atmosfair, “Government of Nepal and German NGO
Atmosfair Agree on Landmark CO2-offset Cooperation,” October 29, 2021.
lvii HFLD represents jurisdictions with extensive forests and historically low levels of deforestation. In this case, concerns are focused on the challenges of proving additionality and setting credible baselines where
countries have only experienced limited amounts of deforestation in the past.
lviiiThe Integrity Council was formed in October 2021 based on the initial work of the Taskforce on Scaling Voluntary Carbon Markets in 2020-2021. It released its Phase II report in 2021.
lix The IC-VCM is the new governance body convening government, financial markets, NGOs, science, academia, civil society, business, and local communities with the aim of setting and enforcing global standards
for the voluntary carbon market. Phase II of the Taskforce on Scaling Voluntary Carbon Markets informed the formation of the Integrity Council. Taskforce on Scaling Voluntary Carbon Markets, Phase II Report,
July 8, 2021.

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BOX 11 Arti cle 6 acti viti es are steadily m o v i n g closer to transacti onal stages an d potenti ally
off er an op po r tun ity to test diff erent contractual structures. A n d wh ile n o b luep rints
Article 6 Activities or templates for Arti cle 6 tran sacti ons have yet f u l ly emerged, bilateral collaborati on
Operati onalizati on of the Arti cle 6 mar ket is h i g h l y dependent o n the readiness f ra me wo r ks that have been developed to date ty p ica lly includ e s i m i l a r elements s u ch
of parti cipants. T h e adopti on of the Arti cle 6 Rulebo ok at CO P 2 6 h a s provided as a c o m m i t m e n t to a p p ly c o r res p o n d i n g ad j u stme nts an d rep or ti ng modaliti es.
greater certainty o n the applicable rules, a n d provided the clarity o n the capacity, Several agreements, i n diff erent sh ap es an d fo r m s , have been fo r m al ize d by countries
infrastru cture, an d syst em requ irements that are needed to s up por t strategic th ro u gh o u t 2021.150,151
en gage ment an d trans acti on s un der Arti cle 6. T h e im p o r tan ce of b u il d i n g Arti cle 6
readiness is refl ected i n the CO P 2 6 decision an d the subsequent U N F C C C Secretariat I n parallel, early m ove rs have started to d e s ign m iti gati o n outcome pu rchase
wo r k p ro g ra m to d es ign a n d i mp le me nt a c a p a c i ty- b u i l d i n g p ro g ra m for develop in g agreements, w h i c h set out c o m me rc ia l ar ran ge ments aro und prices, p ay me nt
countries that w i s h to parti cipate i n Arti cle 6. structures, an d delivery mo daliti es for Arti cle 6 transacti ons. I t is p rov i n g ch al le n g in g
to translate Ar ti cle 6 transacti on str uctures into contracts, for examp le l i n k i n g or
Wh ile n o I T M O s have been transacted to date, countries lo o k in g to become Arti cle co n d iti o n in g p ay me nts for mi ti gati o n o utco mes to the app licati o n of co r re s p o n d in g
6 ho sts have started to develop their en gage me nt strategies an d needed processes, ad ju stme nts a n d m a n a g i n g an d allo cati ng transacti on r isks. Contractu al opti ons
i n c lu d in g for I T M O au th o r izati o n s , w ith potenti al buyer countries p arti cip ati n g i n conti nue to be theoreti cal a n d po or ly understood. Stakeho lders also str u g gle with a
Arti cle 6 transacti ons. To d ay, Arti cle 6 readiness acti viti es focus o n stren gth en i n g lack of i nfo r mati o n o n o pp or tu nity costs for m eeti n g N D C s i n the future.
p arti cip ants’ capaciti es, d evelo ping po licy f rame wo r ks , an d b u il d i n g the necessar y
infrastr u ctu res for Arti cle 6 transacti ons. E xa m p l e s includ e Re c o g n i zi n g that Arti cle 6 r ules at CO P 2 6 p er mi t countries to author ize I T M O s for
• the wo r k of the Global Green G row th I nsti tu te to su pp or t countries i n d es i gn in g use i n vo l u ntar y carbon m ar ke ts, independent crediti ng stand ards s u ch as the Gold
po licy a n d govern ance f ra me wo r ks for e n ga g i n g i n Arti cle 6 tran sacti o ns , lx Stan d a rd are getti ng mo re engaged i n Arti cle 6 acti viti es a n d are tak i n g steps to
co mp le ti n g trans acti o ns f ro m scalable projects an d p ro g ram s , l x i a n d d evelo ping facilitate Arti cle 6 transacti ons. T h i s in clu des, for examp l e, ad apti n g their registr y
approaches to foster private sector engagement; l x i i syste m s a n d i m p ro v i n g overall tran sp arency an d trackability of credit trans acti on s
• the Wor ld B a n k ’s Pa r tn ers h ip for Market I mp le m en tati o n s up por t to develop lin ke d or not li n ked to a co r re s p o n d in g adjustment. T h e recent p a r tn ers h ip
infrastr u ctu res , strategies, an d po licy f ra me wo r ks for countr ies’ parti cipati on i n an n o u n ce ment by the Swe d i s h E n e rg y A g en cy an d Go ld Stan dard , u nd er w h i c h
inter nati on al carbon mar kets ; the Swe d i s h E n e rg y A ge n c y wi ll use adapted Gold Sta n d ard r ules, f ramewo r k, an d
• the U N D P ’s c o u ntr y sup po rt to develop Arti cle 6 regu lato ry f ra me wo r ks an d the infrastru ctures to facilitate its Arti cle 6 transacti ons, 1 5 2 is a n examp le of the b lu r r in g
estab lishment of I T M O process fl ows; lines between the vo l u ntar y a n d co mp li an ce markets.

• J ap an ’s f u n d i n g capacity b u ild in g for par ti cipati ng i n the Joint Cre d iti n g
M e c h a n i s m ( J CM ) ; a n d
• the West A fr i can an d Ea ste r n Afr ica Allian ces o n Carb on M ar kets both conti nue to
su pp or t countries i n their region s to create a n en a b lin g env iro n me nt for Arti cle 6
collaborati on.
lx The Designing Article 6 Policy Approaches program is supported by and implemented together with the Norwegian Ministry of Climate and Environment and looks to develop programs in Indonesia, Morocco,
Vietnam, and Senegal.
lxi The Mobilizing Article 6 Trading Structures program is supported by and implemented together with the Swedish Energy Agency. Activities are currently underway in Cambodia and Nepal.
lxii The Supporting Preparedness for Article 6 Cooperation is supported by and implemented in collaboration with the International Climate Initiative, and expected to start in 2022. The program anticipates
implementing more than eight Article 6 pilot programs across Colombia, Pakistan, Thailand, and Zambia.

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I n additi on, the Vo lu nta r y Car bo n Market I niti ati ve, a multi stakeh older initi ati ve Based on this guidance, an increasing number of companies are seeking to
developed to drive credible en gag eme nt with the crediti ng m ar ke t, released initi al demonstrate their climate ambition. Glo bally, just u n der 2 ,5 0 0 c o mp an ie s wor ldwide
gu idance for a l i g n i n g the vo lu nta r y carbon ma r ket w ith the Par i s A greem ent ’s have n ow s ign e d u p to the S BT i , a n d just un der h a lf (1,155) have approved s c i e n c e -
go als a n d for m a i n ta i n i n g m ar ke t integrity f ro m the d em an d side. Prioriti es in clu de based targets. 1 5 6 B y the end of 2021, fo llowin g the S B T i ’s updated guid an ce an d
p rov id i n g robust approaches to set co mp a n i es ’ targets, d efi n in g c la im s , a n d u s i n g its “ B u s i n e s s A mb i ti o n for 1.5°C ” c a m p a i g n , 1.5°C-align ed targets were the m o s t
h i g h - i n t e g r i t y credits. 1 5 3 Th es e initi ati ves are s h ar p e n i n g rec o mme n d ati o n s o n c o m m o n target type s ub mitt ed by the corporate sector, a cco u nti n g for 7 5 % of
p ro mo ti n g h i gh e r integrity off setti ng cl ai ms , i n c lu d in g wh i c h types of credits can be all targets su bmitt ed th ro u gh o u t the year. A l th o u gh m a n y of the net zero targets
used for w h i c h types of claims. ann ou nced by diff erent gro u ps are less amb i ti o us th an the Par is A greement requires,
overall 1,045 c o mp an i es rep resenti n g U S D 23 trillion i n m ar ke t cap italizati on h ave
Several governance initiatives that offer carbon credit quality assessments are c o mmitt e d i n the past year to set targets that al ig n wi th a 1.5°C pathway. 1 5 7
beginning to emerge. l x i i i Fo r in stance, the Wor ld Wildlife F u n d , the Ö ko - I n s ti t u t ,
an d the E nv i ro n me n ta l Defense F u n d lau nched the Car bo n Credit Quality I niti ati ve, Several groups are prioritizing the role of removals versus reductions for limiting
w h i c h a i m s to deliver a n interacti ve web ap plicati o n for s c o r in g carbon credit quality. global warming to 1.5°C and achieving net zero; however, the deployment of
Private co mp an ie s s u c h as BeZero, Sy lvera, an d C a l y x Global are p rov i d in g s i m i l a r certain removal technologies at the time and scale needed has not yet occurred.
services. T h e Wo rld B a n k provides an a ss es sm ent f ram ew o r k for as s es s in g d iff e r in g In iti ati ves s u c h as the Oxford P r in cip les for Net Ze ro Al ign ed Carb on Off setti ng a n d
qualiti es of m iti gati o n acti viti es i n four are a s — e nv iro n m enta l integrity, m a n a g e m e n t the S B T i have encouraged co mp an ies to p rior iti ze off sets that remove carbon f r o m
enti ty, fi n an c ial structure, a n d sustainable development benefi t. 154
A lo n g wi th the atmo sph ere (for in stance th ro u gh reforestati on or direct air carbon capture) over
initi ati ves rati n g the qu ality of carbon credits, th is wi ll li kely see credit p r i cin g lin ke d re d u cti o n - b as ed off sets that derive f ro m eff orts to prevent extra carbon e m is s i o n s
to wh ether credits meet a gi ven set of q uality standards. entering the atmosphere. H owever, as described i n secti on 3.3 mee ti n g th is d e man d is
c h a ll en gi n g due to lim ited s u p p ly an d the diffi culty i n gu aranteein g the p er ma n e n c y
Another set of initiatives is supporting companies in setting and meeting their of those e m is s i o n s u n de rgro u n d i n the lo n g term. Su p p l y i n g r e m o va l - b as e d credits
climate targets and increasing their ambition while setting specific rules on how based solely o n n e w technologies s u c h as direct air capture sti ll h a s prohibiti ve prices,
carbon credits can be used for compliance. E x a m p l e s includ e the Climate Acti on u p to U S D 600/ tCO 2 sequestered. 1 5 8
100+, Tra n s fo r m to Net Ze ro, the Clim ate Pledge, an d the U N Race to Zero. Over the
past year, the Sc i e n c e - B a s e d Ta rg ets In iti ati ve ( S BT i ) , a mu lti stakeho ld er initi ati ve
developed to promote best practi ce i n corporate climate target s etti n g i n lin e with
climate science, s aw considerable progress. I n July 2021, the initi ati ve p ub lish ed its
Corporate Net Ze ro Stan dard, w h i c h specifi es restricted scenarios i n wh i c h the use
of carbon credits wi ll be accepted for mee ti n g net zero targets. l x i v I t also an n o u n c ed
u p c o m i n g c h an ges to its defi niti on of “s c i e n c e - b a s e d ,” w h i c h wil l c h an ge f ro m
2 ° C or below to 1.5°C or below. Star ti n g i n June 2022, the initi ati ve wil l n o lon ger
accept target s u b m i s s i o n s that fall below th is level, i n a bid to drive u p ambiti on.
Despite these positi ve d evelo pments , the S B T i c ame un der c r i ti c is m f ro m civ il society
voices a n d c o mp an ie s for a ran ge of tran sparen cy a n d meth odo lo gical issue s i n
2021, in c lu d i n g con cer ns that its ta rge t- s etti n g app roach m ay not a li gn with glob al
temperature goals. 1 5 5
lxiii Some of these initiatives are relatively new and are still in the pilot stage, and only a f ew have publicly disclosed their assessment methodology.
lxiv The standard specifies that the only instance in which the use of offsets will b e accepted is to compensate residual emissions that lie outside the scope of a company’s science-based and net zero targets. The
guidance restricts the use of offsets by companies for compensation purposes that replace direct emission reduction activities.

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Annex
Methodologies
A
and sources

Y 1 2 3
1. Sources and timelines: T h e State a n d Tr e n d s of Car bo n P r i c i n g 20 2 2 report • R G G I price data i s the weighted average of the allowance transfer tran sacti o n prices
d raws o n a range of sources, i n c lu d in g offi cial rep or ti ng (i.e., gover n m e nt budget o n M a rc h 31, 2 0 22 for 01/01/2021-12/31/2023 allowance control period converted
d o cu ments ), related legis lati on that u n de r p in s the carbon p r ic in g initi ati ve, f ro m U SD /s h o r t to ns CO 2 e to U SD / m etr ic ton s CO 2 e. 1 6 3
statements f ro m gove r n me nts a n d p ub lic authoriti es, an d in fo r mati o n provided by • U K E T S price data is the U K Allowance ( U K A ) Fu tu re s Price for December 20 2 2
jur isdicti ons. D ata an d updates i n the report represent the situ ati o n as of Ap r il 1, contract o n A p r il 1, 2022. 1 6 4
2022, u n l es s stated otherwise.
7. Revenue: Fo r ju r isd icti o ns wi th fi scal year star ti n g o n A p r il 1, the revenue between
2. Carbon pricing instruments: T h e auth ors recogn ize that clas sifi cati o ns of carbon Janu ar y 1, 2021 an d December 31, 2021 is esti mated by the additi on of o n e -q u ar te r of
p r i ci n g i n str u m en ts other th an those used i n th is report are possible. “ E T S ” refers the A p r i l 1, 2 0 2 0 – A p r i l 1, 2021 revenue an d th re e -fo u r th s of the A p r i l 1, 2 0 2 1 – A p r il
not o n ly to c a p - a n d - t r a d e syst em s but also to b a s e l i n e - a n d - c r e d i t systems. 1, 2 0 22 revenue esti mate. Fr e n c h carbon tax revenue for fi scal year 2021 was not
released before the report wa s fi nalized. T h e revenue fi gure esti mate is provided by
3. Emissions: I nfo r mati o n o n G H G e mi s s i o n s is based o n 2018 E D G A R v6 . 0 G H G the F r e n c h Tre as u r y offi cials.
e m is s i o n s data, 159
where available, or 2018 em i s s io n s data f ro m offi cial sources to
be consistent across jur isdicti ons. 8. Exchange rate conversions: Price an d revenue data are converted f ro m n ati o nal
• G H G e m is s i o n s values for C an ad ian p rov in ces a n d territories are taken f ro m cu r re n cy to U S D u s i n g the I M F exch an ge rates o n A p r il 1, 2022. 1 6 5
Can ad a ’s s u b m i s s i o n to the UNFCCC. 160
• G H G e m is s i o n s values for U S states are based o n offi cial sub nati on al G H G 9. 2021 ETS price developments: Price development data is taken f ro m the
inve nto r y reports of each of the respecti ve states. Inter n ati on al Car bo n Acti on Par tn ersh i p ’s A llowan ce Price E x p lo re r, w h i c h h as u p -
t o - d ate info r m ati o n o n allowance prices i n E T S s . T h e fo l lowin g sources were also
4. Coverage: T h e proporti on of glo bal G H G e mi s s io n s covered by a direct carbon price d rawn up on : Califor nia (the Califo r nia A ir Resources Bo ard website), E U E T S (spo t
is calculated based o n direct carbon p r ic in g in st r u m e nts i n operati on. T h e calculati o n price data is provided by the E u ro p e an E n e rg y E xc h a n g e g ro up ) , Québec (the M in i str y
of em i s s io n s coverage by carbon p r i ci n g i n str u m ent s is based o n offi cial g over n m e nt for the F i g h t A ga in st Cli mate C h an ge website), R G G I ( R G G I website), Swi tzer la n d
sources but does not n eces sar ily factor i n exe mpti o n s and/or e mi s s i o n s thresholds. (Interco nti nental E xc h a n g e an d the S w i s s E m i s s i o n s Registr y).
5. Status of carbon pricing instruments: Car bo n p r ic in g i n str u m en ts are considered 10. Crediting mechanisms: I n the Rep ublic of Ko re a’s off set crediti ng m e c h a n i s m , the
“s ch e d u led for i m p l e m e ntati o n ” once they have been fo r ma l ly adopted th ro u gh n u mb e r of iss ued credits refers to credits converted to Ko re an Credit U n its , w h i c h
legislati o n an d have a n offi cial, planned start date. Carb on p r i ci n g i n str u me nts are ca n be surrendered for co mp lian c e i n the nati on al E T S .
considered “ u n d e r co n s id e rati on ” if the gove r n me nt h as ann ou nced its intenti o n
to wo r k toward the imp l eme ntati o n of a carbon p r i ci n g initi ati ve an d th is h a s been 11. Crediting demand data: Vo lu ntar y carbon ma r ket data is provided by Fo rest
fo r m al ly co nfi r med by offi cial gove r n m ent sources. Tr e n d s ’ n o n - p r o fi t initi ati ve Eco syste m Marketplace. Ec o syste m Marketplace data
contains trade details s u ch as price, vo lu me , an d other carbon credit project an d
6. Price: Add iti o nal price info r mati o n is fur th er clarifi ed here: tran sacti o n att ributes. T h e dataset for 2021 h a d not been fi n al ize d by the ti m e
• A s M exico is cu rrently operati ng its pilot E T S wi th 1 0 0 % free allocati on, there is th is report wa s pu blis hed an d therefore mar ket value fi gures do not represent a
n o price i nfo r m ati o n cu rrently available. complete an n u a l picture. However, Ec o system Mar ketp lace’s dataset re ma i n s the
• M as sach us ett s E T S price data is equal to the M a rc h 18, 2 0 22 aucti on clearing m o s t comprehen sive available for the 2021 calendar year. Ec o syste m Marketplace
price. 161 wil l release updated 2021 fi gures later i n 2 02 2 once data f ro m all respondents h a s
• Califor n ia an d Québec c a p - a n d - t r a d e price data is the Califo r nia Car bo n Allowance been collected.
Vintage 20 2 2 Fu tu res for A p r il o n A p r i l 1, 2022. 1 6 2

Y 1 2 3
Annex B
Carbon tax
and ETS
updates

Y 1 2 3
T h i s secti on outlines s ig n ifi cant develo pments i n regio nal, nati onal, an d su bn ati on al An oth er process is the d is cu s s io n of bills at the B ra z i l i a n N ati o n al Co n gre s s , i n c l u d i n g
carbon taxes an d E T S s worldwide. Where n o s ign ifi cant ch an g es occurred over Bi ll 528/2021. T h i s bill wo u ld create the B ra z i l i a n Market of E m i s s i o n Red ucti on s an d
the past year, these me ch an is ms / j u r is d icti o n s are not included. Fo r mo re detailed give the g ove r n m ent a period of fi ve years to develop regu lati o ns for the n ati o nal
info r m ati o n o n all carbon taxes an d E T S s , please refer to the Carb on P ricin g p ro gra m of e m is s i o n reducti ons. One versio n of th is b ill, w h i c h is cu rrently being
D a s h b o a rd, an interacti ve o nlin e p l atf o r m that provides u p - t o - d a t e in fo r mati o n o n d iscu ssed, wo u ld provide for a n E T S i n Brazil. I n th is context, several p rop os als f ro m
ex isti n g an d e me rg in g carbon p r i ci n g in str u m e nts arou nd the world. the private sector an d c iv il society have also emerged aro un d the estab lish ment of a n
E T S i n the country.
ARGENTINA
T h e quarterly tax rate update for 2021 wa s postponed u nti l 20 2 2 for gasoline an d BRUNEI
gasoil. I n 2021, Br u n ei D a r u s s a l a m explored a p re li mi n ar y s co p i n g for carbon p r i cin g w h i c h
includ es an e mi s s i o n th resh old as well as targeted s u b -s e cto rs . T h e g ove r n m ent also
AUSTRIA conducted a wo r k s h o p o n carbon p r i ci n g policies that a i m s at s h a p i n g the directi on
Au str ia wil l im p l e me nt a carbon levy of of E U R 30 ( U S D 33)/tCO 2 e i n July 20 2 2 u nde r for carbon p r ic in g po licy i n the co u ntr y as well as le ar n i n g f ro m the experiences
its nati onal E T S as part of broader fi scal refo r ms i n the Ec o - S o c i a l Ta x Re fo r m Act of other countries. T h e wo r k s h o p wa s c o - o rga n i ze d by the B r u n ei Clim ate C h an ge
20 2 2 (Öko soziales Steuer refor mgesetz 2 0 2 2 ) that also p la n s to reduce corporate an d Secretariat an d the A S E A N Centre for E n e rg y with s up por t f ro m the In sti tu te of Po li cy
in co me tax rates. T h e n ati o nal e m is s i o n trad in g syste m covers m a i n l y h eati ng a n d Stud ies of the U n ive rsi ty of B r u n ei D ar u s sa lam.
tran spo rtati on e mi s s i o n s not covered u nd er the E U E T S .
CANADA
T h e rate is planne d to rise to E U R 35 ( U S D 39)/tCO 2 e i n 2023, to E U R 4 5 ( U S D 50)/ On Feb r u a r y 2021, the federal gove r n m ent lau nched its review of the o u tp u t- b a s ed
tCO 2 e i n 2 0 2 4, an d to E U R 55 ( U S D 61)/tCO 2 e i n 2025 d u r i n g the fi xe d - p r i c e phase. p r ic in g syste m ( O B P S ) regulati ons. T h e co ns ultati o n paper proposes an a n n u al
A ma r ket phase wil l fo llow f ro m 2 0 2 6 , subject to a review i n 2 0 2 4 a n d co ns i d er in g ti ghte n i n g rate of u p to 2 % for faciliti es u n der the O B P S f ro m 2023 (d e p en d in g
d evelo pments o n the E U level. o n carbon leakage risk). More str i n gent p erfor man ce standard s are proposed to
contribute to Can ad a ’s strengthened G H G em is s i o n s reducti on goals. Proposed
BOTSWANA a me n d m e nts are anti cipated to enter into force i n 2023.
Par liame nt approved B o ts wa n a ’s N ati o n a l C limate Ch a n g e Po l icy d u r i n g 2021, w h i c h
establishes a c o m m i t m e n t to explore the development of a carbon price, i n c l u d i n g I n A u gu st 2021, the federal gove r n m ent released updates to its b e n c h m ar k , w h i c h
ad opti n g an d e nfo rcin g a carbon tax. c o n fi r m s the m i n i m u m nati onal carbon prices for the period 2023 to 20 3 0 an d
strengthens the m i n i m u m nati on al str in ge n cy criteria for carbon p r i ci n g syste ms i n
BRAZIL Canada.
At the end of 2021, the p residen cy of the Rep ub lic released for p ublic con su ltati on a
draft law creati ng the N ati o n al Po li cy o n Cli mate Ch a n ge a n d Green Grow th , w h i c h T h e federal Greenhouse G as Pollu ti on P r i c i n g Act, w h i c h sets a m i n i m u m n ati o nal
wo u ld establish the objecti ves, pr incip les , an d guidelines of a potenti al carbon p r ic in g stand ard o n G H G e m is s i o n s p r i ci n g , h a s been subject to recent court challen ges by
in str ument. mu l ti p le provinces. On M a rch 25, 2021, the Su p rem e Cou r t of Canada r uled that the
legislati on is consti tuti onal.
Tw o parallel a n d o n go i n g processes are c o ns i d er in g the im p lem entati o n of a n E T S i n
Brazil. One is the “Co n s id e rati o n of E nv i ro n m e n ta l Benefi ts i n the Electr icity Se cto r ” T h e fuel charge rates are based o n a carbon price of C A D 50 ( U S D 40)/tCO 2 e i n 2022.
u nd er L a w 14,120/2021, coordinated by the E n e rg y Research Co rp orati on ( E m p r e s a de T h e recent rev is io n to the p olicy extended the price trajectory u p to 2030, with the
Pesqu is a E ne rgéti ca [ E P E ] ) an d the M in i str y of M i n es an d E n e rg y, wit h the su pp or t m i n i m u m rate in cre as in g by C A D 15 ( U S D 12)/tCO 2 e each year, u nti l it reaches C A D 170
of the Inter nati o nal E n e rg y Agency. I n wo r k s h o ps o rgan ized by the E P E i n 2021, ( U S D 136)/tCO 2 e i n 2030.
stakeholders d is cu ssed the p os sib ility of i m p l e m e nti n g a n E T S i n the power sector, as
well as diff erent d es ign opti ons.

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TABLE B.1
Carbon pricing developments in selected Canadian provinces and territories
JURISDICTION RECENT DEVELOPMENTS
Alberta T h e fi xe d - p r i c e co mp lian c e opti on u nder the Te ch n o l o gy I n n ovati o n an d E m i s s i o n s Redu cti o n Regu l ati o n increased f ro m C A D 4 0 ( U S D 32)/tCO 2 e i n 2021 to
C A D 5 0 ( U S D 40)/tCO 2 e i n 2022.
British Columbia On A p r il 1, 2021, B C ' s carbon tax rate rose f ro m C A D 4 0 to C A D 45/tCO 2 e. T h e rate is scheduled to increase to C A D 50/ tCO 2 e o n Ap r il 1, 2022. B C recently
co mmi tt ed to exceed ing the federal backstop rate, wh i c h is scheduled to r ise to C A D 170 by 2030.
New Brunswick T h e N ew B r u n s w i c k O B P S h as replaced the federal O B P S i n th is jur isdicti on.
Newfoundland and A d ju stments to carbon tax rates took eff ect o n July 1, 2021.
Labrador
Nova Scotia T h e cur rent federal ap proval for the p rov in ce ’s carbon p r ic in g syste m expires aft er 20 2 2 an d N ova Scoti a is re v ie wi n g o pti on s for p o s t- 2 0 2 2 carbon p ricin g.
N ova Scoti a held a pu blic cons ultati o n i n 2021, w h i c h covered carbon p r ic in g as well as broader e nv i ro n mental go als an d climate ch an ge policies.
Ontario Ontario transiti oned f ro m the federal O B P S to the Ontario E m i s s i o n s Per fo rmance Stan d a rd s p ro g ra m as of Jan uar y 1, 2022.
Québec T h e fou rth c o mp lian c e period began i n Jan uary 2021 a n d n ew regulati o ns took eff ect, in c l u d i n g amended price ti ers for allowan ces i n the reserve account,
to a li gn with the Califo r nia C a p - a n d - Tr a d e P ro gram.
Fo r the 20 2 1– 20 2 3 period, assistance wa s adjusted based o n each sector ’s carbon leakage risks. E m i s s i o n s - i n t e n s i v e trade exposed ( E I T E ) sectors are
categorized as h av i n g low, m e d i u m , or h i g h r i s k , with assistance factors of 9 0 % , 9 5 % , an d 1 0 0 % respecti vely. P r io r to 2021, assistance factors for all E I T E
sectors were set at 1 0 0%.
I n early 2021, Québec also an no un ced potenti al ch an ge s to the free allocati on rules for the period 2 0 2 4 – 2 0 3 0 .
Saskatchewan Ch a n ge s to the federal backstop have forced a redes ign of Sas katch e wan ’s OBPS. T h e province is cur rently develo pin g O B P S 2023, to be i mp le mente d o n
Jan uar y 1, 2023.

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CHILE CHINA
C h il e ’s draft Fra m e w o r k L a w o n Cli mate Ch a n ge was approved by the Senate i n 2021 s aw C h i n a’s n ati o nal E T S complete its fi rst f u ll co mp l ian ce cycle, wi th a reported
October 2021 an d wa s passed to the C h a mb e r of Deputi es to conti nue its legislati ve co mp lian c e rate of 9 9 . 5 % . Over 2,100 large emitt ers i n the power sector were
process. T h e draft F ra m e w o r k L a w defi nes a syst em i n w h i c h the M i n istr y of obligated to parti cipate d u r i n g th is cycle, covering about 4.5 b illion tCO 2 e per y e a r —
E nv i ro n m e nt wo u ld establish G H G e mi s s i o n s l i m i t s for in d i vi d u al or gro u ps of over 3 0 % of C h i n a ’s total G H G emission s. Pr ices for e mi s s i o n s allowan ces re m ai n
e mi tti n g sources ( i n tCO 2 e/year). relati vely low compared to other p r ic in g syste ms , c lo s i n g at arou nd C N Y 54.2 ( U S D
8.5)/tCO 2 o n D ecember 31, 2021, the last d ay of the fi rst co mp lian c e cycle.
I n December 2021, the C h ilea n gove r n m ent reco mmen d e d a carbon tax of at least
U S D 35/tCO 2 by the end of the decade as part of an updated E n e rg y Po li cy 2050. T h e
n ew p res i de nt- ele ct proposed a Green Ta x Re fo r m in c l u d i n g a grad u al increase of the
carbon tax u p to U S D 40/tCO 2 , but n o ti mef rame was specifi ed.
TABLE B.2
Developments in China’s subnational pilots
JURISDICTION RECENT DEVELOPMENTS
Chongqing A u cti o n in g wa s introduced i n 2021, wi th two au cti o ns held at the end of 2021. T h e fi rst aucti on, held i n Novemb er 2021, so ld 3.5 m i l l i o n allowan ces o n off er
wh il e the second aucti on i n December so ld 5.3 m i l l i o n allowances. I n additi on, f ro m October 2021 liable enti ti es ca n use carbon credits f ro m the C h o n gq i n g
carbon off set m e c h a n i s m to off set u p to 8 % of their e mi s s i o n liabiliti es.
Fujian T h e Fu j ia n E T S achieved 1 0 0 % c o mp lia n ce for 2020.
T h e p rov in c e’s fi rst integrated carbon ma r ke t service p l atf o r m wa s lau nched i n December 2021.
T h e Fu j i an P rov in cial De pa r tme nt of Eco l o g y a n d E nv i ro n m e nt released the latest p u b l icly available detailed allocati on p lan , for 2 0 2 0, i n October 2021.
Guangdong T h e G u a n gd o n g E T S achieved 1 0 0 % c o mp lia n ce for 2020.
Power sector enti ti es transiti oned to the nati on al E T S aft er 2 0 2 0 , wh i c h wa s refl ected i n the 2021 allocati on p la n released i n December 2021. T h e allocati on
p l an also stated that, f ro m 2 0 22 o nward s , the th res hold to enter the co mp lian c e mar ket wi ll drop f ro m 2 0 , 0 0 0 tCO 2 to 10,000 tCO 2 /year.
Hubei T h e H u b e i D ep ar tment of Eco l o g y an d E nv i ro n m e n t released the 2 0 2 0 allocati on p lan i n September 2021, w h i c h in clu ded a d ju stments to the cap to refl ect
the transfer of power sector enti ti es into the nati onal E T S .
Tw o au cti ons were held i n 2021, wit h close to 2.8 m i l l i o n allowan ces aucti oned.

Y 1 2 3
Shanghai S h a n g h a i released its 2 0 2 0 allocati on i n Jan uary 2021, w h i c h refl ected the transiti on of the power sector ( i n c l u d i n g 19 c o a l -fi re d power p lants ) to the
n ati o nal E T S a n d the additi on of 27 n e w c o mp an ie s , rep resenti ng a record for the h igh e st n u mb e r of c o mp an i es in clu ded i n the Sh a n g h a i regio nal carbon
m ar ke t since its launch. Au cti on s were held i n A u gu st an d September 2021, generati ng a total revenue of C N Y 21.59 mi llio n .
Shenzhen T h e S h e n z h e n E T S achieved 1 0 0 % co mp l ian ce for 2020.
I n June 2021, the S h e n z h e n M u n ici p al Bureau of Justi ce released draft I nt e r i m M easures for the M an age ment of Car bo n E m i s s i o n s Tra d i n g for pu blic
co nsu ltati on , wh i c h in clud ed ( a m o n g other th i n g s ) a potenti al trans iti o n to an absolute cap an d a n increase i n the n u m b e r of allowan ces aucti oned.
Tianjin T h e T i a n j i n E T S achieved 1 0 0 % co m p lian c e for 2020.
T h e T i a n j i n pilot held two au cti on s i n 2021 an d so ld 3.5 m i l l i o n allowances.
I n September 2021, the Stan d in g Co mmitt ee of T i a n j i n M u n ici p al People’s Co n gres s issu ed the T i a n j i n Carb on Pe ak i n g an d Neutrality P ro m o ti o n
Regulati ons. Fo r the fi rst ti me, th is regulati o n fo r m al ly introduces fi n an cia l penalti es for n o n co mp lia nc e i n the region al carbon ma r ke t t h ro u gh h i g h - l e v e l
region al legislati on.
COLOMBIA • Fi s ca l i n str u me nts to intern alize the env iro n me ntal costs of solid waste i n Côte
L a w 2169 of December 2021 established that, as of 2023, h a lf of carbon tax revenues d ’ Ivo ire ,
wil l be used, a m o n g others, i n coastal erosion ma n a ge me nt, co ns er vati o n of water • Vehicle taxati on refor m i n Côte d ’I vo ire: T h e ecological b o n u s - m a l u s ,
sources, a n d the protecti on of ecosystems. T h e other h alf of revenues wi ll be used for • E nv i ro n m e nta l taxati o n i n Côte d 'Ivo ire : I nve nto r y an d identi fi cati on of carbon
fi n an c in g the P r o g r a m for the Su bsti tu ti on of Ill icit Use Cro ps ( P ro g ra m a N aci o n al p r i cin g opportuniti es.
I nte gra l de Su sti tu c ió n de Cu lti vo s de Uso Ilícito).
T h e s e studies are expected to be presented an d disseminated to local stakeholders
T h e E T S d e s ign is cu rrently being an alyzed by the gover n ment. T h e Cl imate Acti on i n 2 02 2 an d the n ex t steps wi ll be info r med by feedback provided th ro u gh th i s
L a w ( L e y de A cción C li máti c a) , w h i c h c ame into force i n December 2021, consolidates con sultati o n process.
the c o m m i t m e n t s presented i n Co l o m b ia ’s N D C an d sets a go al to fu l l y im p l em e nt the
E T S by 2030. T h i s law h as also set a n o bligati o n for legal p erso ns to report direct an d DENMARK
indirect G H G e m is s i o n s , fo ll owi n g criteria to be set by the M in i str y of E nv i ro n m e n t I n D ecember 2 0 2 0 , related to the Cl imate Act, the D a n i s h g over n m e nt ann ou nced a
an d Sustainable D evelop ment (M inamb iente). Green Ta x Refo r m to achieve D e n m a r k ’s em is s io n s reducti on goal. T h e refo r m did not
includ e a ny p rov is io n s o n the D a n i s h carbon tax.
CÔTE D'IVOIRE
Five p r el i mi n ar y studies have been developed o n the fo llowin g topics: EUROPEAN UNION
• Benefi ts beyond climate: Ec o n o m i c co -b en efi ts of carbon taxati on i n Côte d ’ I vo ir e, T h e E u ro p ea n Clim ate L a w entered into force i n Ju ly 2021, setti n g n ew b in d i n g E U -
• Pro po sals for a fi scal b o n u s - m a l u s m e c h a n i s m for the p ro mo ti o n of sustainable wide climate targets for 20 30 ( 5 5 % cut i n G H G e m is s i o n s compared to 1990 levels)
cocoa i n Côte d ’I vo ire , a n d 20 5 0 (net zero e m is s i o n s ), an d i n iti ati n g a process to develop a 2 0 4 0 target.

Y 1 2 3
A s part of the broader package of legis lati on un der the Eu ro p ean Green Deal that was f ro m all energy taxes i n c lu d i n g CO 2 c o mp o n ent of the energy tax rate). Tax ati o n o n
anno un ced i n 2 0 20 , the E u ro p ean C o m m i s s i o n put fo rward a p olicy refor m p ackage heati n g fuels, s u ch as coal, n atural gas , peat, an d fuel oil, wa s increased by E U R 2.7/
to deliver o n the E u ro p ean Green Deal a n d al ig n decar b onizati on eff orts wi th the m e ga w a tt - h o u r f ro m the b e gi n n i n g of 2021 (the increase was ma de to the en ergy
updated 20 3 0 climate target. content tax).
T h e package places the E U E T S at the heart of the E U ’s decarb on izati on agenda with GERMANY
maj o r ch an ges that includ e G e r m a ny su c ce ssfu ll y lau nched its nati on al fuel E T S o n Januar y 1, 2021 at a fi xe d
• an increased lin ear reducti on factor f ro m 2 . 2 % to 4 . 2 % , an d a o n e - o ff reducti on to price of price of E U R 25 ( U S D 28)/tCO 2 e an d the sale of N ati o n al E m i s s i o n s Tra d i n g
the cap to be applied retroacti vely wh en the legislati ve process for the revisio n is Sc h e m e ( n E H S ) allowances started i n October 2021. A ll fuel e m is s i o n s not regulated
concluded; u nd er the E U E T S ( m a i n l y h eati n g an d road tran sp or t) are covered. Th es e e mi s s i o n s
• the in c lu s io n of the m a r i ti m e sector into the ma r ke t ’s scope f ro m 2023, an d a stem f ro m a variety of sources, s u c h as h eati n g, oil, natural ga s , petrol, an d diesel.
separate fuel E T S for b u il d in gs a n d road tran sp or t; So me fuels (e.g., coal a n d waste) wi ll be ph ased i n subsequently i n 2023.
• the introd ucti on of u n i fo r m product b e n ch ma r ks to sup po rt b re ak th ro u gh
technologies, mo re str in ge nt b en ch m ar k values, an d a p rov is io n that wo u ld render T h e n ati o nal E T S wil l be ph as ed i n grad u all y with a fi xed price o n e m is s i o n
free allocati on co nditi on al o n l o w- c a r b o n investment by the receiving enti ty; allowances f ro m 2021 to 2025. I n the n ex t years, the fi xed price w ill co nti n u o u s ly rise
• the grad u al p h a s e - o u t of free allocati on to aviati o n sector; to E U R 55 ( U S D 61)/tCO 2 e i n 2025. I n 2 0 2 6 , allowan ces wi ll be aucti oned i n a price
• the intro ducti o n of a C B A M that prices impo rted goo ds based o n their embedded corr idor ra n g i n g between E U R 55 ( U S D 61)/tCO2e an d E U R 6 5 ( U S D 72)/tCO 2 e. F r o m
e mi s s i o n s f ro m 2 0 2 6 ; 2027 o nward s , allowance prices wi ll be set by the m ar ke t u n le ss the gove r n m ent
• updated p arameters of the M S R in c lu d i n g a n e w buff er thresho ld an d an exten sio n
proposes a n ew price corridor i n 2025. T h e cap is set based o n G e r m a ny ’s m iti gati o n
of the cu rrent intake rate of 2 4 % beyond 2023; an d targets for sectors not covered by the E U E T S as outlined i n the E U Eff o r t S h a r i n g
• n ew regu lati on s arou nd revenue use to address distr ib uti o nal eff ects an d s p u r
Regulati on. Revenue wil l be used for a variety of meas ures , i n p arti cular to sup po r t
in n ovati o n , in cl u d i n g the creati on of the Social Cli mate Fu n d . d ecar bo nizati o n, to lower electricity rates for co n s u m e rs , a n d to deduct transp o rt
costs f ro m i n co me taxes for commu ters.
T h e updates, s plit into several legislati ve p ro pos als, fo llow an extensive process that I n Ju ly 2021, a Car bo n Le akage Reg ul ati o n was adopted that a i m s to ensure c r o s s -
in clu ded mu lti p le co ns ultati o n rounds. T h e C o un cil an d the Eu ro p ea n Par li am e nt border competi ti ven ess of fi r m s regulated u nde r the n E H S .
need to agree o n their fi n al fo r m before they can take effect.
T h e n ext steps i n the i mp le mentati o n of the n E H S in clu de a m e n d i n g the Fu e l
FINLAND E m i s s i o n s Tra d i n g Re gu lati o n by d e te r m i n in g the a n n u al cap of the n E H S an d
F r o m Jan uar y 1, 2019, F i n l a n d ch an ged the me th o d o l o gy to calculate the CO 2 intro d u cin g h a rd s h i p provisions. A fi rst draft wa s pu blis hed i n October 2021.
e mi s s io n s for heati ng fuels an d fuels for wo r k m ac h i n e s covered u nd er its carbon
tax , whereby fu ll life cycle em is s io n s of the fuels are n ow includ ed instead of o n l y INDONESIA
co mb u sti o n emission s. To l i m i t the additi onal tax burden due to th is ch a n ge , the I n October 2021, the I n d o n es i an H o u s e of Representati ves passed a law o n tax
carbon tax rate of these fuels decreased f ro m E U R 6 2 ( U S D 69)/tCO2e to E U R 53 ( U S D regulati o n h ar m o n izati o n . While the law includ es a suite of broader tax refo r ms , it
59)/tC 2 e. I n additi on, the parti al carbon tax exe mpti o n for co m b in ed heat a n d power also in clud es the introd ucti on of a carbon tax. T h e intro ducti o n of a carbon tax is part
p lants was turned into a parti al en ergy tax exempti o n , re s u lti n g i n a s m a l l increase of of I n d o n e s ia ’s broader Car bo n P r i c i n g Ro a d m ap , set out i n a presidenti al u mb re lla
the tax burden o n coal to sup po rt the transiti on away f ro m coal use. regulati o n also s ign ed i n October 2021, wh i c h in clud es a l o n g e r- t e r m p l an for
intro d u cin g an E T S an d a carbon crediti ng me c h an is m . T h e carbon tax was in iti a lly
T h e electricity tax class I I ( in d u str y, agriculture, m i n i n g , data centers) was lowered set to co mm en ce i n A p r il 2 0 22 but w as pu sh ed b ack to c o m m e n c i n g i n Ju ly i n li gh t
to the E U m i n i m u m i n 2021 an d at the s am e ti me the tax refu n d for e n e rg y- i n t e n s i v e of r i s i n g energy c o m m o d i t y prices. T h e M in i str y of E n e rg y an d Mineral Resources
enterprises wil l be abolished over the fo u r- y e a r trans iti o n period 2 0 21 – 2 0 2 5 (ref u n d is lo o k i n g to determine e m is s i o n caps for c o a l -fi r e d power stati ons i n 2022. T h e

Y 1 2 3
gove r n me nt is fu r ther a ss e s si n g the potenti al to ap p ly a carbon price to other sectors E nv i ro n m e nt res u me d d is cu s s io n s at the Su b c o mmitt ee o n U ti lizati o n of Carb on
(ac co rd in g to sector read in ess), wit h the a i m of h av i n g a b ro a d -coverage carbon P r i c i n g o n Feb r u ar y 1, 2021 wh ile the M i n ist r y of Ec o n o m y, Tra d e a n d I n d u s tr y
p r ic in g p o licy m i x imp le me nte d by 2025. started a carbon p r i cin g stu d y gro u p i n m i d - Fe b r u a r y 2021. One opti on being
progressed is a detailed d es ig n for the im p lem entati o n of the Green Tra n sfo r m ati o n
A presidenti al regu lati on that provides a n ati o nal legal u m br ella for the develop ment Le agu e, a b a s e l i n e - a n d - c re d i t syste m for co mp a n ies s etti n g vo lu nta r y targets. T h i s
of carbon p r i ci n g in str u m en ts , in c lu d i n g a n E T S , wa s s ign ed i n October 2021. A s n ew m e c h a n i s m wil l l ikel y b uild o n ex i sti n g carbon trad i n g syste ms s u ch as the J CM
of M a rch 20 22, the gove r n me nt i s w o r k i n g o n a set of draft regulati o ns to gu id e or J - C r e d i t scheme.
the development an d imp le mentati o n of carbon p r i ci n g i n str u me nts i n I n d o n es ia,
in c l u d i n g o n the procedures for i m p l e m e n ti n g a n E T S i n the power sector. T h e E T S Saitama
regu lati o n, prepared by the M i n istr y of E n e r g y an d M ineral Resources, wi ll outline the T h e Sa ita ma E T S is i n its th ird c o mp lian c e period ( F Y 2 0 2 0 – 2 0 2 4 ) , wh i c h requires
broad c o mp lian ce requ irements an d h i g h - l e v e l d e s ign aspects. faciliti es to reduce e m is s i o n s by 2 0 % or 2 2 % below baseline em is s io n s , depen ding o n
their category.
IRELAND
T h e Fi n an ce Act 2 0 2 0 legislated for an n u a l increases i n carbon tax to E U R 100 ( U S D Tokyo
111)/tCO 2 by 2030. A series of an n u al increases of E U R 7.50 ( U S D 8.3) ap p ly to the I n June 2021, the To k y o M etropolitan G ove r n me nt released e m is s i o n s data for FY2019.
am o u nt charged per metr i c ton of CO 2 emitt ed c o m i n g into eff ect f ro m 2021 a n d for D ata indicates that covered facility e m is s i o n s were reduced by 2 7 % d u r i n g the fi ve
each year thereaft er u p to an d in cl u d i n g 2 0 2 9 wi th a fi n al increase of E U R 6.5 ( U S D years of the second c o mp lian ce period ( F Y 2 0 1 5 – F Y 2 0 1 9 ) co mp ared to b a s e -y e a r
7.2) i n 2030. emis sion s. T h i s represented a n overachievement o n the target set for the period.
Car bo n tax for petrol an d diesel increased f ro m E U R 2 6 ( U S D 29)/tCO 2 to E U R 33.5 MALAYSIA

( U S D 37)/tCO 2 o n October 14, 2020. T h e increase extended to all other fuels o n w h i c h T h e M a lays ia n M i n i str y of E nv i ro n m e n t an d Water is w o r k i n g w ith other relevant
the tax is applied i n M ay 2021. T h e second increase of E U R 7.50 ( U S D 8.3)/tCO 2 , f ro m m in istr ie s , in c lu d i n g the M in i str y of Fin an ce, to develop a n E T S p olicy a n d
im p lem entati o n framewo rk . At the s a me ti me the Gover n m ent of M al ays ia conti n ues
E U R 33.50 ( U S D 37)/tCO 2 to E U R 41.00 ( U S D 45)/tCO 2 emitt ed applies f ro m October 13,
to consider the potenti al for i m p l e m e n ti n g other carbon p r i ci n g policies, in cl u d in g a
2021 for auto fuels a n d M ay 1, 20 2 2 for all other fuels.
carbon tax an d vo lu ntar y carbon markets.
ISRAEL
I n A u gu st 2021, the I sraeli M in isters of E nv i ro n m e nta l Protecti on, Fi n an ce , E n e rg y, MEXICO
an d E c o n o my ann ou nced the intenti o n to im p l em e nt a carbon tax i n 2023. T h e carbon I n M arc h 2022, the Secretaría de H acie n d a y Crédito Pú blico an no un ced exempti o n s to
tax i s anti cipated to be applied th ro u gh the ex i sti n g fuel excise syste m an d wil l cover the carbon tax applied to gas olin e an d diesel.
coal, L P G , fuel oil, petcoke, an d natural gas f ro m 2023. Other initi ati ves are p la n ne d
to address G H G e m is s i o n s f ro m waste an d lan d fi lls a n d other sources. MONTENEGRO
I n October 2021, a lo n g with other Western B a l ka n states, Montenegro agreed wi th the
Diesel an d gas olin e used for road transp or tati o n wi ll not be taxed fur ther an d the E U o n a ro ad ma p for imp leme ntati o n refl ected i n the Green Age n d a A cti o n Plan. T h e
carbon tax wil l replace a s hare of the exi sti n g excise tax. Als o, the imp leme ntati o n of E U wi ll s up po rt s u ch eff orts wi th E U R 9 b illion ( U S D 10.6 b illi o n ) i n g rant s a n d E U R
the tax rates is not intended to cause the price of electricity to increase by m o re th a n 2 0 b illion ( U S D 26.3 b illi on ) i n investments . U nd er the agreement, M ontenegro wi ll
5 % u nti l 20 28 u nd er the proposed legislati on. need to f u l ly al ig n its nati on al legislati on with the E U ’s by 2024. T h e start date of the
E T S h a s not yet been announced.
JAPAN
Ja p an ’s p r i me mi n iste r h as asked two diff erent mi n i st r i es to develop an d propose NETHERLANDS
a carbon p r i ci n g m e c h a n i s m that ca n contribute to growth. T h e M in istr y of the On Jan uary 10, 2 0 22 the n ew D u tc h gove r n me nt was s wo r n i n an d its climate acti on

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p l an s are set out i n the 20 21 – 2 0 2 5 coaliti on agreement. Refe r r in g to the carbon tax, PORTUGAL
the agreement states that the gove r n me nt intend s to increase the rate of the m a rg i n a l A s part of the p ackage of measu res to res pon d to the extraordinar y increase i n fuel
levy. Also, to m a i nta i n price certainty, a grad u ally in crea s in g price fl oor w il l be prices, the Portuguese g over n m e nt decided to su sp e n d the increase of the CO 2 tax
introduced for the E U E T S price, preferably i n agreement with n e ig h b o r i n g countries. u nti l M a rch 31, 2022. T h e rate rem ain ed at E U R 23.921 ( U S D 26.4)/tCO 2 e u nti l M a rc h
31, 20 2 2 an d a potenti al increase to the tax is sti ll und er considerati on. Po r tu gal
NEW ZEALAND started to im p le m ent a carbon tax o n air an d sea travel ( Ta x a de carbono sobre
A n u mb er of refo r ms to the E T S were introduced d u r i n g 2021 i n lin e wi th the approval v iag en s aéreas) o n July 1, 2021. A tax of E U R 2 ( U S D 2.2) wil l be levied o n all air a n d
of the Cl imate Ch a n ge Resp on se ( E m i s s i o n s Tr a d i n g Re fo r m ) A m e n d m e nt Act 2020. sea travel pass en gers d epar ti ng f ro m Portugal. N o n co m me rc ia l fl i ghts are exe mpt
T h e refo r m s in clu de a n e w cap o n u n i t s u p p ly an d the intro du cti o n of a n a u cti o n in g f ro m th is tax.
m e c h a n i s m ( co i n c id in g wi th the with d rawal of the fi xe d - p r i c e opti on, w h i c h
previous ly acted as a price ceiling). A u cti o n i n g began i n M arc h 2021, wit h 19 m i l l i o n REPUBLIC OF KOREA
allowan ces ma d e available for au cti o n in g ( p l u s an additi onal 7 m i l l i o n allowances Ph as e 3 of the E T S c o m me n c e d i n 2021 wi th a stricter cap a n d an increased pro po rti o n
that were released f ro m the cost co ntain m ent reserve). of allowan ces distr ibuted via aucti on. Ph as e 3 h as also seen t h i r d - p a r t y parti cipati on,
wi th the gove r n m ent ap p rov i n g 2 0 fi n an c ial in sti tuti o ns to enter the ma r ket for the
NORWAY fi rst ti me.
I n its Clim ate P l a n for 2 0 2 1 - 20 30 , the fo r m er gove r n me nt an nou nced its p l an s to
increase the carbon tax rate o n n o n - E T S em is s io n s to N O K 2 0 0 0 ( U S D 229)/tCO 2 e ( i n SINGAPORE
2 0 2 0 te r m s ) by 2030. T h e cur rent gove r n m ent h a s stated that it inten ds to fo llow u p T h e g over n m e nt ann ou nced the o utco mes of the carbon tax review as part of the
o n th is measure. To keep u p wi th the price increase trajectory, N o r w ay increased the Nati o na l Bud get Statement delivered o n Feb r u a r y 18, 2022. T h e carbon tax rate wi ll be
rates of carbon tax for ap p rox imate ly 3 0 % for m o st fo ssil fuels i n 2022. T h e general increased to S G D 25/tCO 2 e ( U S D 18/tCO 2 e) i n 2 0 2 4 an d 20 25, a n d S G D 45/tCO 2 e ( U S D
tax rate o n n o n - E T S e m is s i o n s increased f ro m N O K 591 ( U S D 68)/tCO 2 e i n 2021 to 33/tCO 2 e) i n 2 0 2 6 a n d 2027, wit h a view to re ach i n g S G D 5 0 - 8 0 / tCO 2 e ( U S D 3 7 - 5 9 /
N O K 7 6 6 ( U S D 88)/tCO 2 e i n 2022. tCO 2 e) by 2030. T h e revised tax levels an d trajectory provide a n appropriate price
s ign al for b u sin esses an d in d iv id u a ls to reduce their car bon footprint an d enable the
N o r way also introduced a tax o n waste incin erati o n at the rate of N O K 192 ( U S D 22)/ transiti on to a l o w- c a r b o n future. T h e early an n o u n ceme nt provides bu sinesse s wi th
tCO 2 e an d n atural ga s an d L P G used i n greenh ou ses w h i c h was previous ly exe mpt greater certainty i n p l a n n i n g wh ile e n h a n c in g the bu siness case to invest i n l o w -
f ro m the carbon tax, at the rate of N O K 77 ( U S D 9)/tCO 2 e. carbon technologies an d carbon mar kets. T h e gove r n me nt h a s put i n place s ch eme s
to fi n an c ially sup po rt b usin es ses’ d ecarb on izati on eff orts a n d wi ll conti nue to review
T h e g over n m e nt removed certain exem pti o n s for natural gas a n d L P G for certain the su pp or t measu res for b usin es ses to i m p le m ent n e e d l e - m o v i n g decar bo nizati on
in d u str ial processes as of Jan uary 1, 2 0 2 0 to strength en its climate p olicy an d i mp rove soluti o ns to increase competi ti veness.
the cost-eff ecti ven es s of its carbon tax. However, i n relati on to the C OV I D - 1 9
d is r u pti o n i n the fi rst h a lf of 2 0 20 , the p a r liam ent h a s decided to reinstate the Co mp a n i e s wi ll also be able to su rrend er h i g h - q u a l i t y inter nati o n al carbon credits to
exem pti o n for natu ral ga s a n d liquefi ed p etro leu m as of A p r il 1, 2020. T h e tax was off set u p to 5 % of their taxable e m is s i o n s f ro m 2024. T h i s wi ll c u s h io n the im p a ct
reintroduced by the p ar l iame nt i n 2021, but not put into eff ect due to concer ns that for co mp an ie s that are able to source for credible carbon credits i n a co st-eff ecti ve
the exe mpti o n for u n de r tak in gs subject to the E T S wo u ld be considered to consti tute man ner. T h i s wil l also help to create local d e man d for h i g h - q u a l i t y carbon credits
state aid u nd er the E u ro p ea n Ec o n o mi c Area Agreement. T h e tax wil l be put into an d catalyze the development of w e l l -f u n c ti o n i n g a n d regulated carbon markets.
eff ect as soo n as the measure h as been noti fi ed an d accepted by the Eu ro p e an Free A tran siti on f ram ew o r k wi ll also be introduced to give exi sti n g E I T E c o mp an ie s m o re
Tra d e Agreement Sur veillan ce Authority. A s of Feb r ua r y 2022, the tax h a s not yet ti me to adjust to a l o w- c a r b o n economy. To help m a i n ta i n bu sin ess competi ti veness
been put into eff ect. i n the near ter m an d miti gate the r i s k of carbon leakage, exi sti n g faciliti es i n E I T E
sectors wil l receive transito r y allowances for par t of their em is s io n s , based o n
effi ciency stan dard s an d d ecar bo nizati o n targets. T h e g over n m e nt reco gn izes that

Y 1 2 3
ex isti n g investments were mad e a mi d st a diff erent operati ng context a n d there are SWEDEN
n e a r- t e r m challen ges i n tran s iti on i n g to l o w- c a r b o n operati ons (e.g., d ecar bo nizati on On A u g u st 1, 2019, Swed en e limin ated or reduced exempti o n s to its carbon tax as
technologies need ti m e to mature). N e w investm ents wi ll not qu alify for the part of a set of meas ures to reach its climate target of net zero e mi s s io n s by 2045.
trans iti o n framewo rk . T h e parti al exem pti o n for diesel used i n m i n i n g , w h i c h stood at 4 0 % of the carbon
T h e gove r n me nt is cur rently co n s u l ti n g aff ected co mp an ie s o n the framewor k. T h e tax rate, wa s abolished. I n additi on, the exempti o n for fuels used to generate heat
details wi ll be fi n ali zed by 2023, ahead of the increase of carbon tax level i n 2024. i n cogenerati on faciliti es that fall un der the E U E T S is reduced f ro m 8 9 % to 9 % if
th is heat is not used i n in d u str ial m an u fa ctu r i n g processes. T h i s is i n line with other
SOUTH AFRICA heat generati on p la nt s i n the E U E T S . He at generated by faciliti es outside of the E U
A s part of the 2 02 2 budget, the gove r n me nt an no un ced a range of updates to the E T S re m ai n taxed at the f ul l carbon tax rate, w h i c h sits at S E K 1222 ( U S D 130)/tCO 2 i n
carbon tax. T h e s e c h an ge s inclu d e a n increase i n the carbon tax rate f ro m Z A R 134 2022. T h e an n u a l adjustment by gro s s d omesti c product h as been paused for 2021 a n d
( U S D 9.2)/tCO 2 e to Z A R 144 ( U S D 9.8)/tCO 2 e for the 20 2 2 tax period. T h e budget 2 0 22 for gaso lin e an d diesel.
also proposes a ran ge of potenti al refor ms to the transiti on al phase of the carbon
tax. U nd er the proposal, the tran siti on al phase wo u ld be extended by three years SWITZERLAND
to December 31, 2025 a n d wo u ld in clud e other c h an ges to the available su pp or t Swi tze r l an d ’s CO 2 levy au to mati cally increased to C H F 120 ( U S D 130)/tCO 2 e star ti n g
meas ures , i n c lu d i n g ad ju sti n g the th resh old for the m a x i m u m trade exp os ure o n Jan uar y 1, 20 22, since em is s io n s of fo ssil heati n g an d process fuels i n 2 0 2 0 were
allowance f ro m 3 0 % to 5 0 % f ro m Jan uar y 1, 2023; exten d in g the electricity price beyond 7 6 % of the sector ’s em i s s io n s i n 1990.
n eutrality c o m m i t m e n t u nti l December 31, 2025; an d ad ju sti n g the carbon tax rate
applied to G H G em is s io n s exceeding the (yet to be legislated) carbon budgets to I n September 20 2 0 , the S wi s s Pa r lia ment adopted the legal f ra me wo r k for S w i s s
address co ncern s re gard in g double penalti es to co mp an i es covered by both the carbon climate p olicy u nti l 2 0 30 th ro u g h the f u l ly revised CO 2 Act (Fed eral Act o n the
tax an d carbon budgets. Red ucti on of Greenhouse G as E m i s s i o n s ) , w h i c h set out a 5 0 % e mi s s i o n reducti on
target an d reinforced measu res for the transp or t, b u ild in gs , an d in d u str y sectors. T h e
At the s am e ti m e the gove r n me nt ’s proposal in clu des measu res to help p romote the f u l ly revised CO 2 Act was p lan ned to enter into force i n 2022. Howe ve r, voters rejected
tran siti on to a c li mate -r es i li e nt ec o n o my a n d to imp rove the l o n g - t e r m carbon price the revised CO 2 Act i n a referend um held o n June 13, 2021.
signal. T h i s includ es a proposal to revise h ow future carbon tax rates are set. T h e
proposal wo u ld increase the carbon tax rate by at least U S D 1 each year to reach U S D I n response to the referen du m, i n December 2021 the Sw i s s Par liame nt adopted
20/tCO 2 e by 2 0 2 6 an d then for the carbon price to increase mo re rap id ly thereaft er to a p ro lo ngati on of the CO 2 Act th ro u gh a parti al rev is io n of the CO 2 Act u nti l 2024.
at least U S D 30 by 2 03 0 a n d u p to U S D 120 beyond 2050. T h e gove r n me nt also intend s I t guarantees a co nti nu ati o n of ex i sti n g measures, in c lu d i n g the CO 2 lev y at its
to grad u all y reduce the basic tax-f r e e allowances i n the period f ro m 2 0 2 6 to 20 3 0 cur rent rate of of C H F 120 ( U S D 130)/tCO 2 e. T h i s parti al rev isio n could be subject to a
an d to increase the carbon off set allowance by 5 % f ro m Jan uar y 1, 2 0 2 6 to encourage referen dum call, if hand ed i n by A p r il 2022.
investments i n carbon off set projects. T h e s e an d other p ro po sals wi ll fo r m part of a
review for the second phase, to i n fo r m future budget an nou ncements. TAIWAN, CHINA
Sin ce the b eg in n i n g of 2021, the Ta i w a n E nv i ro n m e n ta l Protecti on A d m in i strati o n
SPAIN ( T E PA ) h as been i n the process of re v is in g the act. I n July 2021, the T E PA established a
A co nsu ltati on process to m o d i f y so me elements of the tax o n fl uor inated gas es n ew climate c h an ge offi ce un der it to accelerate po licy development. I n late October
started i n 2021. 2021, the draft of revision of the Greenhouse G as Control Act wa s p ub lish ed for pu blic
con sultati o n an d ren ame d as Cl imate Ch a n ge Resp on se Act. T h e draft legis lati on
Catalonia proposes a n ew carbon fee for do mesti c em is s i o n s , wh i c h wo u ld co mm en ce ahead
T h e vice p reside ncy of e co n o my an d fi n an ce of Catalo nia started a p u blic co ns ultati o n of a n E T S m ec h a n is m . T h e proposed carbon fee wo u ld potenti ally cover direct and/
process o n a possible carbon tax o n M arc h 1, 2022. T h e p ublic con sultati on a i m s or indirect e mi s s i o n s w ith the potenti al to use d omesti c off sets to cover carbon fee
to guarantee the applicab ility of the tax o n greenhouse ga s em is s i o n s generated by liabiliti es. Car bo n fee revenues wo u ld be directed toward s u p p o r ti n g d omesti c climate
eco no mic acti viti es an d to achieve the en ergy transiti on objecti ves established by L a w m iti gati o n an d a l o w- c a r b o n economy.
16/2017 o n climate change.

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Aft er p ublic con su ltati on , the Climate Ch an g e Res po nse Act is expected to be UNITED STATES
sub mitt ed to the L egis lati ve Yu a n i n the fi rst h al f of 2 0 22 for fu rther review an d Most carbon p r i ci n g d evelo pments i n the United States are ta k in g place o n the
fi n alizati o n. Fu r th er details of the carbon fee an d E T S wil l be developed via s u b - l aw s . su b nati o nal level, as s u m m a r i ze d below.
Regu l ato r y d is cu s s io n s are p e n d in g o n the specifi c d es ign of the carbon fee a n d E T S
syste m , the ti melin e of i mp le mentati o n , an d h ow the carbon fee could trans iti o n to California
(or coexist w i th ) an E T S . Major ch an ge s to the p ro g ra m took eff ect i n Januar y 2021, in cl u d in g the additi on of a
price ceiling , the i n c lu s io n of two allowance price co ntain me nt reserve ti ers below the
THAILAND price ceiling , reducti ons i n the use of off set credits (especially for credits generated
Fo l l o w i n g COP 2 6 , the gove r n me nt is d evelop ing r ules an d guidelin es for carbon f ro m projects that do not provide direct e nv i ro n mental benefi ts i n the state), a n d a
credit tra d in g , expected to be released i n 2022. A s part of th is wo r k, the T h a i l a n d steeper allowance cap decline to 2030.
Greenhouse G as M an age ment Organ izati o n is collab orati ng wit h the Federati on of
T h a i In d u str ie s to develop a carbon credit trad in g platf orm. T h e Califo rn ia A ir Resources Bo ard lau nched the Cl imate C h an ge Sco p i n g P l a n update
process d u r i n g 2021, wh i c h seeks to develop po licy strategies to achieve 2 03 0 an d
UKRAINE 2 0 4 5 targets. T h e s c o p i n g p lan wi ll be p ublish ed i n 2022.
U k rain e ’s p ar l iame nt approved n e w a m en d me nts to the tax co d e — th e carbon tax rate
increased f ro m U A H 10 ( U S D 0.3)/tCO 2 e to U A H 30 ( U S D 1)/tCO 2 e sta r ti n g f ro m J an u ar y B y M ay 2021, prices reached record h i g h s for Califor n ia Carb o n Allowances, as
1, 20 22, a n d u p to 7 0 % of budget revenues f ro m carbon taxes wi ll be directed to observed by the aucti on sett lement price an d i n reported prices for c o mm o d i ty
reduce CO 2 e m is s i o n s a n d to encourage decarb on izati on i n certain sectors. B y the end exch an ge futures contract for n e a r- m o n t h delivery an d brokered transacti ons.
of June 2 0 22 the Cabinet of M in isters of U krain e p la n s to develop an d s u b mi t a draft
law to the p ar li ame nt o n fur th er use of s u ch budget revenues. Massachusetts
T h e sh are of E T S allowances distr ibuted th ro u gh free allocati on was 5 0 % i n 2020. T h e
UNITED KINGDOM syste m ch an ge d to fu l l au cti on in g i n 2021. I n M arc h 2021, M as sach us ett s passed a
T h e fi rst U K A aucti on took place i n M ay 2021, wi th all of the mo re th a n 6 m i l l i o n n e w climate law wi th b i n d i n g e mi s s i o n reducti on targets of 5 0 % below 1990 levels by
allowances o n off er sold at the ma r ket clear ing price of G B P 43.9 9 ( U S D 58 ), well 2 0 30 an d 7 5 % below 1990 levels by 2 0 4 0 , as well as net zero e m is s i o n s by 2050.
above the aucti on reserve price of G B P 22.00 ( U S D 29). T h e s a me d ay m a r ked the
start of U K A futures trad in g and , a week later, the gove r n m ent transferred the fi rst T h e fi rst p ro g ra m review (required by regulati on ) wa s i n 2021, wit h a review every 10
free U K A s for the 2021 sc h em e year to eligible regulated enti ti es. T h e intro du cti o n of years thereaft er. To address potenti al liqu id ity is sue s, the p ro g ra m review considered
n ew allowan ces to the mar ket h a s sin ce co nti nu ed th ro u g h t w i c e - m o n t h l y aucti ons. the fo llowin g acti ons: l i m i t s o n allowance b an k in g , a u cti o n in g of future allowan ces,
an d adju stment of aucti on bid limits.
A n aucti on i n early October 2021 of just u nder 5.19 m i l l i o n U K A s p arti ally cleared,
with about 4.15 m i l l i o n U K A s being so ld at G B P 6 0 . 0 0 ( U S D 79). A s per the s ch em e ’s Oregon
rules, the b id s below th is price level were deemed too far below the seco nd ar y m ar ke t I n December 2021, the E nv i ro n m e n ta l Quality C o m m i s s i o n adopted the rules for the
price at the ti me an d the 1.04 m i l l i o n u n s o ld U K A s were distributed acros s the fo ur Clim ate Protecti on P ro g ra m that started i n Janu ar y 2022. T h e Cl imate Protecti on
subsequent aucti ons. A ll other aucti on s i n 2021 cleared fully. P r o g r a m places a d e clin i n g l i m i t o n G H G e mi s s i o n s f ro m su pp liers of liq uid fuels a n d
propane an d n atu ral ga s uti liti es, also dubbed local d istrib uti on companies.
To avoid instability i n allowance prices, the U K E T S h a s a cost co ntain me nt
m e c h a n i s m ( C C M ) that allows au cti o n in g of additi onal allowances. Wh ile the m o n t h l y Regional Greenhouse Gas Initiative
average U K A prices i n September, October, a n d N ove mb er 2021 were above the C C M I n M ay 2021, the fi n al regulati o n to establish an E T S i n Pen n sy lva n i a covering CO 2
tr igger price of G B P 52.88 ( U S D 69 . 5 ), the U K E T S A u th o r ity decided not to intervene. e m is s i o n s f ro m the power sector a n d to join R G G I w as released alon gsid e updated
T h e C C M was triggered again i n Janu ar y 2 02 2 an d a n an n o u n ce ment was m ad e i n m o d e l in g results of the eff ects of the E T S . I t wo u l d allow for R G G I parti cipati on
m i d - J a n u a r y that, agai n , n o interventi on wo u ld be made. star ti n g 2022, b ar r in g liti gati o n or acti on f ro m the state legislature. Pe n n sy l van ia ’s
sh are of e mi s s i o n s i n the 2 0 22 R G G I cap is ap p rox imate ly 4 5 % .

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A n e m is s i o n s c o ntain ment reserve started operati ng i n 2021. T h e em is s io n s I n Jan uar y 2022 , the gove r n me nt of Vi etn am iss ued a decree, wh i c h provides a
co ntain me nt reserve i s a n auto mati c ad ju stment m e c h a n i s m that wi ll adjust the cap compreh ens ive set of regulati o n s un der the revised L a w o n E nv i ro n m e n ta l Protecti on
d own ward wh e n carbon prices are lower th an expected. an d outlines a ro ad map for their imp lementati o n . T h e decree sets fo rth rules for
m o n i to r in g , repo r ti n g, an d verifi cati on ( M R V ) syste ms an d in clu des p rov is io n s for
T h e R G G I states initi ated the T h i rd P ro g ra m Review i n s u m m e r 2021 to a n a lyze d evelop in g a nati onal E T S wi th a d e clin i n g cap c o r res p o n d in g to V ie tn a m’s N D C an d
p ro g ra m successes, i mp acts , potenti al additi onal reducti ons to the cap p o s t- 2 0 3 0 , the estab lish ment of a nati onal crediti ng m ec h a n is m .
an d other d es ign elements. T h e review is expected to be concluded i n 2023.
V ietn a m anti cipates l a u n c h i n g a pilot E T S i n 2 0 2 6 , before l a u n c h i n g a fu ll E T S i n
Transportation and Climate Initiative Program 2028.
I n June 2021, the four p ar ti cip ati n g jur isdicti ons released a fi n al mo d el rule for the
imp le me ntati o n of the Tra n sp o r tati o n a n d Clim ate In iti ati ve P r o g ra m ( T C I - P ) , wi th
repo r ti ng of e mi s s i o n s an d fuel s h i p m e nt data u nd er the p ro gra m scheduled to start
i n 2022.
I n the second h alf of 2021, m o s t of the par ti cipati ng states halted parti cipati on i n
the proposed T C I - P. A cc o rd in g to the fi n al m e m o r a n d u m of u n d e rstan d i n g , the
fi rst co mp li an ce period of T C I - P w ill co m m en ce J an uar y 1, 2023 or once “a t least
three jur isd icti on s have completed the legal processes required to im p l em e nt their
in d iv i du al p rograms .” 1 6 6 Aft er the recent develo pments , it is u n li ke l y that the
imp l eme ntati o n of T C I - P i n its cur rent fo r m wi ll conti nue.
Washington
I n M ay 2021, Gover no r Jay Ins lee s ign ed into law the Climate C o m m i t m e n t Act, w h i c h
pu ts i n place a n e c o n o m y- w i d e c a p - a n d - i n v e s t p ro gra m that b egins i n Janu ar y 2023.
URUGUAY
U r u g u ay ’s carbon tax wa s imp l eme nte d o n Janu ar y 1, 20 22, fo llowin g P residenti al
Decree 441/021. T h e carbon tax rate for 2 0 22 i s U Y U 5,645.45 ( a p p rox i mat el y U S D
137.29).
VIETNAM
I n N ovemb er 2 0 2 0 , V i etn am ’s revised L a w o n E nv i ro n m e nta l Protecti on wa s issued.
T h e revised law c o nfi r med the role of carbon p r i ci n g i n V ie tn am’s m iti gati o n po licy
m i x , provided the legal ma n d ate for the development of a d omesti c e mi s s i o n s trad in g
s ch em e an d a nati onal crediti ng m e c h a n i s m , an d as s ign e d min i ste r ial responsibiliti es.
T h e revised law wi ll also be s up plemented by a P r i m e Minister ial ro ad map for C P I
imp l eme ntati o n , wh i c h is cur rently un der development an d is expected to be iss ued
i n 2022. T h e f ram ewo r k legislati o n also emp owers the M in i str y of N atura l Resources
an d E nv i ro n m e n t to set the em is s io n s cap an d determine the me th od of allowance
allocati on, a n d allows for the in c lu s io n of d omesti c an d inter nati on al off sets.

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Annex
Crediting mechanism
C
updates

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T h i s ap p en d i x presents s ign ifi cant d evelo pments i n carbon cred iti n g m e c h a n i s m s i n
the year u p to A p r il 1, 2022. Where n o s ign ifi cant ch an ges occurred over the past year,
these m e c h a n i s m s are not included. Fi gu re 16 presents a n overview of d omesti c an d
independent crediti ng m e c h a n i s m s in clu ded i n th i s report.
FIGURE 16
Credits issued, registered activities, average 2021 price, and
sectors covered by crediting mechanisms
Name of the mechanism Credits issue d Registered Average S ectors covered
(MtCO2e) activities price ( U S D )
American Carbon Registry 8.8 18 1
1.4 Agriculture
Climate Action Reserve 4.8 44 2.1
Carbon capture and
Gold Standard 43.8 51 3.9
storage and Carbon
Verified Carbon Standard 295.1 110 4.2 capture and utilization
Plan Vivo 0.01 1 11.6 Energy efficiency
Clean Development Mechanism 59.5 0 1.1
Forestry
Alberta Emission Offset System 0.4 33 32
Fuel switch
Australia Emission Reduction Fund 17.1 142 11.9 - 12.7
Beijing Forestry Offset Mechanism - 0 8.9 Fugitive emissions
Beijing Parking Offset Crediting Mechanism 0.002 0 7.6
Industrial gases
British Columbia Offset Program - 0 N/A
Manufacturing
California Compliance Offset Program 17.4 38
China GHG Voluntary Emission Reduction Program - 0 0 . 6 -14.9
8.2 Other land use
Chongqing Crediting Mechanism - 7 2.7 - 4 . 6 Renewable energy

Fujian Forestry Offset Crediting Mechanism 0.3 3 1.6 - 3.1 Transport
Guangdong Pu Hui Offset Crediting Mechanism 0.3 20 3.5 - 6 . 6
Waste
J-Credit Scheme 0.9 44 13 - 2 0 . 8
Blue carbon
Kazakhstan Crediting Mechanism 0.1 3 N/A
Québec Offset Crediting Mechanism 0.2 3 15.5
Republic of Korea Offset Credit Mechanism 5.2 28 10.7 - 2 9
RGGI CO2 Offset Mechanism - 0 N/A Crediting mechanisms:
Saitama Forest Absorption Certification System 0 15 N/A
Independent
Saitama Target Setting Emissions Trading System 6.4 592 3.8
International
Spain FES-CO2 program 0.9 0 8.8
Switzerland CO2 Attestations Crediting Mechanism 1.4 13 128.2 Domestic
Taiwan GHG Offset Management Program 12.4 20 N/A

Thailand Voluntary Emission Reduction Program 3 32 N/A
Tokyo Cap-and-Trade Program 0.01 5 3 9 - 52.4
Joint Crediting Mechanism 0.001 6 N/A

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C.1 DOMESTIC CREDITING MECHANISMS ecological produ cts wa s released at the fi rst C h i n a ( C h o n gq i n g ) G u a n g ya n g B ay Green
a n d L o w - c a r b o n D evelo pment Su m m i t.
T h i s secti on outlines s ig n ifi cant develop ments i n regio nal, n ati o nal, an d su bn ati on al
crediti ng me ch an is m s . Where n o s ign i fi ca nt ch an ge s occurred over the past year, GUANGDONG PU HUI OFFSET CREDITING MECHANISM
these mec h an is ms / ju r is d icti o n s are not included. Fo r mo re detailed i nfo r m ati o n o n all N e w P u H u i Certi fi ed E m i s s i o n s Red ucti on s trad in g rules o n the qu anti ty an d price
carbon taxes a n d E T S s , see A n n e x B an d the Car bo n P r i c i n g Dash bo ard, an interacti ve of certain tran sacti o n types were established i n June 2 0 2 0 , fo llowin g a s u s p en s io n by
on lin e p latf o r m that provides u p - t o - d a t e info r m ati o n o n ex isti n g an d e m e rg i n g the p rov i n cia l gove r n me nt i n A u gu st 2018. I n early 2022, the G u a n gd o n g g over n m e nt
carbon p r i cin g i n str u m ent s arou nd the world. consulted o n o pti on s to deepen an d imp rove the crediti ng m e ch a n i s m .
ALBERTA EMISSION OFFSET SYSTEM INDO-PACIFIC CARBON OFFSETS SCHEME

Quanti fi cati on protocols have been updated over the past year to cover e mi s s io n s T h e I n d o - Pa c i fi c Carb on Off sets Sc h e me i s designed to help partner countries
reducti ons f ro m captu r in g vented m eth an e a n d for e mi s s i o n s reducti ons associated generate an d trade h i g h - i n t e g r i t y carbon off sets un der the Par is Agreement. I n
with carbon capture an d storage. N ove mb er 2021, the A u stralian g ove r n m e nt ann ou nced four draft d es ign p rinciples:
tran sparent an d in clu s ive gover nance; align ed with the Par is Agreement an d S D G s ;
AUSTRALIA EMISSIONS REDUCTION FUND resp on sib ility an d cooperati on a m o n g st parti es; an d h i g h - i n t e g r i t y units.
T h e A u stra lian g ove r n m ent is seeking to increase the n u mb er of me th o d s available
to potenti al project proponents. Fo r examp l e, a n e w meth o d for carbon capture JOINT CREDITING MECHANISM
an d storage wa s mad e available i n October 2021, an d a Blu e Carb on Method became Aft er COP 2 6 , Ja p an ’s Minister of the E nv i ro n m e nt anno un ced that Japan wil l exp an d
available d u r i n g Janu ar y 2022. the JCM partner countries an d strength en project development an d im p leme ntati o n
i n collaborati on wi th inter nati on al o rga n izati o n s , a n d scale u p the J CM by m o b i l i z i n g
BEIJING FORESTRY OFFSET MECHANISM fur ther private fi nance.
While there were n o additi onal credits issu ed d u r i n g 2021, the g over n m e nt ’s 2 02 2
Acti on P l a n o n C limate C h an ge reaffi r ms the c o m m i t m e n t to increase the carbon s i n k QUÉBEC OFFSET CREDIT COMPONENT OF THE CAP-AND-TRADE
capacity of forestry an d green spaces. T h e gove r n m ent of Québec established a crediti ng p ro g ra m that issu es Québec off set
credits intended for o rgan izati o n s w a n ti n g to meet co mp li an ce ob ligati on s un der
CHILE CREDITING MECHANISM the E T S . I n 2021 draft regu lati on s for aff orestati on a n d reforestati on projects were
T h e gove r n me nt of Ch i le pu blished a draft climate ch an ge law i n Januar y 2021 released, an d si gn ifi cant techn ical wo r k toward crediti ng for anaerobic m a n u r e
that wo u ld set u p a b a s e l i n e - a n d - c r e d i t s ch e me to drive e mi s s i o n s reducti ons digesti on.
a m o n g in d i vi d u al c o mp an ie s or gro u ps of c o mp an ie s as a po licy to achieve sectorial
co mp l ian ce wi th Ch il e’s l o n g - t e r m e m is s i o n reducti on goals. T h e regu lati on for the REPUBLIC OF KOREA OFFSET CREDIT MECHANISM
crediti ng m e c h a n i s m h as been un der p ub lic co ns ultati on an d is subject to change. T h e Rep ublic of Ko re a off set credit m e c h a n i s m was imp leme nte d to provide off set
credits for use w i t h i n Ko re a’s E T S . Ko re an Off set Credits ( KO C s ) m u s t be converted
CHINA GHG VOLUNTARY EMISSION REDUCTION PROGRAM into Ko re an Credit U n its ( KC U s ) by the Ko r e an gove r n me nt before they ca n be used
C h i n a ’s G H G Vo lu nta r y E m i s s i o n Red ucti on P ro g ra m wa s imp le mente d i n 2012 but for co mp lian c e obligati ons. L i m i tati o n s have been introduced o n the issuan ce an d
wa s suspended i n 2017, m e a n i n g that n e w projects have not been added sin ce that convers io n of off set credits i n P hase 3, w h i c h c o mm e n c ed i n 2021. Fo r examp l e, KO C s
ti me. T h e gove r n m ent is cur rently co n s id er in g a r e - r e l a u n c h of the pro gram. m u s t be converted into K C U s w i t h i n two years aft er the end d ay of the KO C s ’ iss uance
year.
CHONGQING CARBON OFFSET MECHANISM
T h e C h o n gq i n g carbon off set m e c h a n i s m was lau nched i n September 2021. A Ph as e 3 h as also seen intern ati o nal KO C s b ein g traded i n the m ar ke t for the fi rst ti me.
C h o n gq i n g Certi fi ed E m i s s i o n s Red ucti on s p l atf o r m for re al izi n g the value of

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SASKATCHEWAN GHG OFFSET PROGRAM in c lu d i n g d igital method o lo gies a n d wo r k fl ows , internet of th i n g s for data gath e r in g ,
Du e to c h an ges i n federal backstop req uirements, Sas katc h ewan ’s proposed p rov in cial distributed ledger techno logy, an d s m a r t contracts that ca n enhance data q uality,
Off set P ro g ra m is b ein g redesigned. A mod ifi ed Off set P ro g ra m wi ll be laun ch ed i n reduce ti me an d costs, a n d provide access to s m al le r or less experienced project
co nju ncti on with the p rov in c e’s updated O B P S i n 2023. supporters. T h e initi ati ve i s g o i n g to be suppor ted by Google.org Charitable, w h i c h
provided a grant of U S D 1 m i l l i o n to the Gold Standard. 1 6 8
SOUTH AFRICA CARBON TAX OFFSET SYSTEM
T h e So u th A fr ic an Car b on Ta x Off set syste m cur rently operates th ro u gh a VERIFIED CARBON STANDARD
“gat e ke e p i n g ” mo del, whereby projects i n So u th Africa developed u nder the C D M , Verra is i n the process of u p d ati n g its Verifi ed Car bo n Sta n d ard Avo i d i n g U n p la nn ed
the VCS, an d the Gold Stan d ard are potenti ally eligible. T h e So u th A fr ica n carbon Deforestati on an d D egrad ati o n meth od ologies to s h ow the latest best practi ces
off setti ng regulati o ns were amend ed i n Ju ly 2021. o n carbon credits for R E D D + acti viti es. T h e updated metho do lo gies wil l in clu de
stan dardized processes for acti vity data generati on, baseline development,
T h e gove r n me nt i s also co n s id e r in g d evelo ping its o wn cred iti n g m ec h a n i s m. I n m o n i to r in g , an d leakage. Th es e processes a i m to guarantee that in d iv i du a l R E D D +
Januar y 2022, the So u th A f r ic an D e p ar tme nt of Min eral Resources a n d E n e rg y projects conti nue to direct carbon fi nance to endangered forests wh i le the evoluti on
released for p ublic c o m m e n t a draft f ra me wo r k to develop do mesti c carbon off set of jur isd icti on al R E D D p ro gra m s is sti ll i n progress. 1 6 9
standards. T h e draft f ram ewo r k sets out the req uirements , criteria for selecti on,
evaluati on, a n d ap proval of d omesti c standards. Con sultati o n o n the n ew metho do lo gies wil l close i n M ay 2022. Th es e co nsu ltati on s
wi ll i nfo r m the rev isio n of the meth od ologies a n d w ill be followed by an as s es s ment
SPANISH CARBON FUND FOR A SUSTAINABLE ECONOMY of a validati on/verifi cati on body. Verra intend s to p u b lis h the revised method olo gies
I n late 2 0 2 0, the scope of the S p a n i s h Carb on F u n d for a Sustainab le Ec o n o m y was by the end of 2022.
broadened i n lin e wi th the n ati o nal p olicy o n climate c h an ge an d the i n c o m i n g
additi onal eff orts needed to achieve carbon n eutrality by 2050. T h e gove r n m ent sti ll CLIMATE ACTION RESERVE
intend s to acquire credits c o m i n g f ro m acti viti es carried out th ro u gh the U N F C C C a n d T h e Clim ate A cti o n Reserve lau n ch ed a process to develop a Bio c h ar Protocol for
the Pa r is A greement framewor k. T h o s e ch an ge s wil l be f u l ly operati onal f ro m 2 0 22 q u anti f y in g , m o n i to r in g , repo r ti ng , a n d ve r i f y in g the climate benefi ts f ro m the
onwards. p ro ducti on of biochar. 1 7 0 B io ch ar produ cti o n sequesters CO 2 an d relates to acti viti es
s u ch as p ro d u cin g feedstocks f ro m agricultural residues an d other waste b i o m as s
SRI LANKA CARBON CREDITING SCHEME sources s u ch as ti mb er harvests. T h e protocol wi ll defi ne eligible biochar p ro du cti o n
T h e Sr i L a n k a Car bo n Cre d iti n g Sch e me ( S L C C S ) wa s initi ated as the S r i L a n k a Car bo n operati ons, as well as end uses for wh i c h the per man ence of sequestered carbon
Stan d a rd i n 2013, but wa s restructured as the S L C C S i n 2016. Updated p ro g ra m c an be reasonably esti mated. T h e protocol is developed th ro u gh a mu lti stakeho ld er
guid elines were released i n 2021, wh i c h in clud e revised req uirements for project wo r k g ro u p w ith representati ves f ro m in d u str y, project developers, n o n g ove r n m e ntal
validati on , verifi cati on, an d registrati on. o rgan izati o n s , verifi cati on bodies, an d others, an d is expected to be approved an d
laun ch ed i n 2022. 1 7 1
C.2 INDEPENDENT CREDITING MECHANISMS AMERICAN CARBON REGISTRY

T h e A me r ic an Car bo n Re g istr y introduced a n ew fu ncti on ality i n its registr y to
GOLD STANDARD label credits as “c a r b o n re m o va l s ,” d i s ti n g u i s h i n g th em f ro m em is s io n reducti on
T h e Gold Stan d a rd is seeking to l au n ch a n initi ati ve to develop d i giti zati o n credits, with the a i m of in cre as in g tran sparen cy regard i n g credit att ributes for credit
technologies for setti ng u p the M R V processes of carbon markets. T h e a i m i s to buyers. 1 7 2 Projects that generate both carbon rem oval s a n d e m is s i o n reducti ons, s u c h
develop a tool that c an also m o n i to r other benefi ts beyond e m is s i o n reducti ons, like as imp roved forest m a n a g e m e nt projects, can d i sti n g u i s h between the two credit
the progress achieved toward the SDGs. 167
types u p on issuance. Here, re moval credits represent the carbon sequestered i n n ew
trees b ein g g row n i n the project area, whereas e mi s s i o n reducti ons represent the
T h i s development takes place i n a context where m u c h of the project develop ment carbon reduced th ro u gh imp roved h ar vesti n g techniques. 1 7 3
an d M R V is sti ll conducted m a n u a l l y, an d it a i m s to blend a s p ec tr u m of technologies,

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C.3 INTERNATIONAL MECHANISMS
CLEAN DEVELOPMENT MECHANISM

Wi th the end of the second phase of the Kyo to Protocol, the C D M b egins its transiti on
to the m e c h a n i s m s created u nder the Pa r is Agreement. Acti viti es registered un der
the C D M are eligible to tran siti on to the Arti cle 6.4 m e c h a n i s m u nde r the fo ll owi n g
circumstances: 1 7 4
• T h e request to tran siti on the C D M acti vity to Arti cle 6.4 m u s t be mad e by De cember
31, 2023. H o st c o untr y approval for s u c h transiti on s m u s t be m ad e by December 31,
2025.
• Once approved, the acti vity m ay conti nue to follow its cu rrent me th od o lo gy u nti l
the end of its cur rent cred iti ng period or December 31, 2025 ( whi ch eve r is earlier).
Aft er th is date, it wi ll have to follow the meth odo lo gies approved un der Arti cle 6.4.
• T h e certi fi ed e m is s i o n reducti ons iss ued un der the C D M m ay be used to achieve
fi rst N D C s , provided that the acti v ity w as registered o n or aft er Jan uary 1, 2013. T h e
ho st co u ntr y wil l not be required to ap p l y a co r res p o n d in g adjustment.
A lth o u gh the Arti cle 6.4 m e c h a n i s m is built o n the p reviou s experience of the C D M , it
wi ll have its own set of rules, mod aliti es , an d procedures.
CORSIA
T h e I CAO CO R S I A pilot phase started o n 1 Jan uar y 2021. However, aviati o n em is s i o n s
re ma in below baseline levels fo ll owi n g the decision to use 2019 e mi s s i o n s as the
baseline, an d are u n li ke ly to exceed these levels u nti l at least 2023, w h i c h m a r k s
the end of CO R S I A ' s pilot phase. 1 7 5 A s of M arc h 2021, 108 states have si gn ed u p for
CO R S I A’s pilot phase. At the end of 2021, eligible e m is s i o n u n i ts were approved f ro m
eight p ro gra ms : A m er ic an Car bo n Re gistr y, Architecture for R E D D + Tran s ac ti o n s ,
C h i n a G H G Vo lu ntar y E m i s s i o n Red u cti on P ro g ra m , Clean Develo p ment M e ch a n i s m,
Climate Acti on Reserve, Global Car bo n Co u n ci l, Gold Stan dard, a n d Verifi ed Carb on
Standard. D u r i n g 2022, the Tec h n ic al A d v is o r y B o d y wi ll reassess interested eligible
CO R S I A E ligib le E m i s s i o n s Un it P ro g ra m s to i n fo r m the I CAO C o un cil o n w h i c h
em is s i o n s u n its s h o u l d be eligible for use u nder CO R S I A i n the fi rst phase star ti n g i n
2023. 1 7 6

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Endnotes
1 I nte rgove r n me ntal Pan el o n C limate Ch an ge , WGII Sixth Assessment Report: 15 E u ro p ea n C o m m i s s i o n , Prop o sal for a Directi ve of the E u ro p ea n Par l iame nt a n d of
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A. A l K h o u rd aj ie, R. va n D i e me n , D. M c Co l l u m , M. Path ak , S. So me , P. Vya s, R. M eeti ng of 17 M a rch 2 0 2 2,” M a rc h 8 , 2022.
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9 H i g h - L e v e l C o m m i s s i o n o n Carb on P rices, Report of the High-Level Commission on 23 G. D o m i n i o n i , D. E n gl e r t, R. S a l g m a n n , an d J. B rown , “ C a r b o n Revenu es f r o m
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11 J.C. M i n x , W.F. L a m b , R.M. A n d re w, J.G. Canad ell, M. Cr i p p a, N. Dö bb eling , P.M. 25 O. Wa n n a n , “ Ev e r y o n e Wants to B u y C a r b o n — S o W hy Does N o One Want to Se ll?,”
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14 M. X u an d D. Sta nway, “ C h i n a S l a m s F i r m s for Fa l s i f y i n g Car bo n D ata,” Reuters, 30 I. Gerretsen, “ S o u t h Ko rea Proposes C u tti n g E m i s s i o n s 4 0 % by 2 0 3 0,” Climate Home
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31 D. N ac hti ga ll, J. E l l i s , an d S. E r ren d a l, “ C a r b o n P r i c i n g a n d C OV I D - 1 9 : Po lic y Ec o n o m i c s , October 2021.
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37 See, e.g., E u racti v, “ E u r o p e ’s E n e rg y Price H i ke Fu elled by Speculators, Sp a in an d 57 U K Par liame nt, “ E nv i ro n m e n ta l A ud it Co mm itt e e I n q u i r y : Carb on Border
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46 P. Bh at, “ C a r b o n Needs to Cost at Le a st USD100/tonne N o w to Re ach Net Ze ro by 64 N. O ko n j o - I we a l a , “ A d o p ti n g a Global Car bo n Price I s E s s e n ti al,” Financial Times,
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Carbon Pricing: State and Trends of

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State and Trends

T h i s wo r k is available u nder the Creati ve C o m m o n s Att ributi on 3.0 I G O license ( C C

Attribution—Please cite the wo r k as follows: T h e Wor ld Bank. 2022. “ State

Translations—If yo u create a trans lati on of th is wor k, please add the fo llowin g

FOREWORD SUMMAR CHAPTER CHAPTER CHAPTER ANNEXES 2

FOREWORD SUMMAR CHAPTER CHAPTER CHAPTER ANNEXES 3

FIGURE 2 FIGURE 13A

Gl o b al vo l u me of is s u an c es by cred iti ng m e c h a n i sm category 34

FOREWORD SUMMAR CHAPTER CHAPTER CHAPTER ANNEXES 4

T h e fi n alized Arti cle 6 Rulebo ok provides ro o m for

FOREWORD SUMMAR CHAPTER CHAPTER CHAPTER ANNEXES 5

FOREWORD SUMMAR CHAPTER CHAPTER CHAPTER ANNEXES 6

CHAPTER 2: CARBON TAXES AND EMISSIONS TRADING

ANNEX A: METHODOLOGIES AND

ANNEX B: CARBON TAX AND ETS

ANNEX C: CREDITING MECHANISM UPDATES

FOREWORD SUMMAR CHAPTER CHAPTER CHAPTER ANNEXES 7

FOREWORD SUMMAR CHAPTER CHAPTER CHAPTER ANNEXES 8

Executive summary TRANSFORMATION AND

• Worldwide, 6 8 carbon pricing instruments (CPIs), including taxes

CARBON PRICES HAVE HIT RECORD CARBON REVENUES HAVE

• Nonetheless, prices must rise considerably more to meet the Paris

FOREWORD SUMMAR CHAPTER CHAPTER CHAPTER ANNEXES 9

Executive summary GAINING TRACTION

• The EU moved closer to adopting its Carbon Border Adjustment

• Annual voluntary carbon market value exceeded USD 1 billion for

• These approaches can fortify domestic support, prevent carbon

DIVERSE PURCHASER PREFERENCES NEW FINANCIAL SERVICES,

• New rules on Article 6 increase certainty while also adding

FOREWORD SUMMAR CHAPTER CHAPTER CHAPTER ANNEXES 10

T h e I ntergover n mental Panel o n Clim ate C h an g e ’s latest report, its S i x t h A s s es s ment

FOREWORD SUMMAR CHAPTER CHAPTER CHAPTER ANNEXES 11

FOREWORD SUMMAR CHAPTER CHAPTER CHAPTER ANNEXES 12

Carbon crediting mechanism refers to a syste m where tradable credits

FOREWORD SUMMAR CHAPTER CHAPTER CHAPTER ANNEXES 13

Direct carbon p r i cin g syste ms ( th ro u gh carbon taxes an d E T S s ) have, to date, la rg ely

Eve n c ro s s - c o u n t r y c o m p a r i s o n s of overall or “e ff ecti ve ” carbon prices that in clu de

FOREWORD SUMMAR CHAPTER CHAPTER CHAPTER ANNEXES 14

emissions 2.1 ADOPTION OF DIRECT CARBON PRICING CONTINUES BUT

FOREWORD SUMMAR CHAPTER CHAPTER CHAPTER ANNEXES 15

FOREWORD SUMMAR CHAPTER CHAPTER CHAPTER ANNEXES 16

Number of carbon pricing

of C h i n a ’s total G H G emission s. While the prices for e mi s s i o n s allowances rem a in

FOREWORD SUMMAR CHAPTER CHAPTER CHAPTER ANNEXES 18

Switzerland Sweden Liechtenstein

Netherlands Ireland* Canada**

40 China National ETS Icelan d

Spain Portugal Slovenia

Share of GHG emissions covered in the jurisdiction

Bubble s ize represents absolute covered total greenhouse gas emissions.

FOREWORD SUMMAR CHAPTER CHAPTER CHAPTER ANNEXES 19

FOREWORD SUMMAR CHAPTER CHAPTER CHAPTER ANNEXES 20

viii Based on data from ICAP Allowance Price Explorer.

FOREWORD SUMMAR CHAPTER CHAPTER CHAPTER ANNEXES 21

FOREWORD SUMMAR CHAPTER CHAPTER CHAPTER ANNEXES 22

FOREWORD SUMMAR CHAPTER CHAPTER CHAPTER ANNEXES 23

FOREWORD SUMMAR CHAPTER CHAPTER CHAPTER ANNEXES 24

FOREWORD SUMMAR CHAPTER CHAPTER CHAPTER ANNEXES 25

General tax rate

Prince Edward Island

FOREWORD SUMMAR CHAPTER CHAPTER CHAPTER ANNEXES 26

$90 Carbon tax ETS revenues surpass carbon

FOREWORD SUMMAR CHAPTER CHAPTER CHAPTER ANNEXES 27