The World Bank is a long-time proponent of carbon pricing as an efficient tool to meet emission reduction targets. Its latest report, Carbon Pricing Watch 2017, highlights the global trends. Under the Paris Climate Agreement, countries set their own climate targets known as nationally determined contributions (NDCs) in a bottom-up approach rather than having targets imposed upon them. Parties also design their own policies with which to meet their targets, which collectively show that nations are considering some form of carbon pricing for 58% of global GHG emissions. An interactive global map, known as the Carbon Pricing Dashboard, provides up-to-date information on where carbon taxes and emission trading schemes have been implemented, or are planned, so far. At present, over 40 national and 25 sub-national jurisdictions, responsible for about a quarter of global greenhouse gas emissions, are placing a price on carbon. China is currently running eight pilot schemes ahead of launching an emissions trading scheme this summer, which will replace the EU Emissions Trading System (EU ETS) as the world’s largest.
The basic carbon trading model places a limit on the amount of CO2 that can be emitted by each installation included in the scheme. Companies are allocated permits equal to the cap on their emissions. Installations that emit less than their cap can sell their permits to those who are going to emit more, thereby maintaining an overall limit on emissions and placing a value on CO2. Another approach is for emitters to purchase part or all of their allowances at auction. The total value of global carbon pricing initiatives in 2017 is $52.22bn, an increase of 7% compared to 2016. Despite the growth in carbon price implementation, political change has brought uncertainty for some climate policies. In the US, the new administration is seeking to abolish the Clean Power Plan, which curbs emissions from power plants. In the UK, Brexit plans could bring an end to the UK’s participation in the EU ETS. Currently, carbon pricing for the UK’s power sector is structured as a combination of the Carbon Price Floor and the EU ETS. Carbon taxes ultimately feed through to the end consumer, with the level being dependent upon the carbon intensity of generation.