State and Trends of Carbon Pricing 2025

The report—State and Trends of Carbon Pricing 2025— was released by the World Bank on 10 June 2025.

Key Highlights: Carbon Pricing in 2025

Record Revenue Generation

• Carbon pricing revenues crossed $100 billion in 2024 — a new global milestone.
• Over 50% of the revenue was earmarked for environmental, infrastructure, and development projects, showing a slight increase in dedicated climate spending compared to previous years.

Global Expansion of Carbon Pricing Instruments

Instruments in Operation

• 80 carbon pricing instruments are currently active worldwide — a net increase of five over the past year.
• These instruments now cover around 28% of global GHG emissions.
• They operate in economies representing nearly two-thirds of global GDP.

Middle-Income Economies Take the Lead

• All large middle-income economies have now either implemented or are actively considering carbon pricing.
• Most new or planned instruments are Emissions Trading Systems (ETSs).

Types of Carbon Pricing Instruments

1. Emissions Trading System (ETS)

• Governments set a cap on allowable emissions.
• Companies can buy or sell allowances based on their emission levels.
• Encourages cost-effective emissions reductions.

2. Carbon Taxes

• Directly prices carbon by imposing a tax on GHG emissions or carbon content in fossil fuels.
• Provides price certainty, encouraging emitters to shift to cleaner alternatives.

3. Carbon Crediting Mechanisms

• Allows trading of carbon credits, each equivalent to 1 tonne of CO₂ or equivalent emissions reduced/removed.
• Credits are earned via:
  • Emission reduction activities (e.g., methane capture from landfills).
  • Carbon removal projects (e.g., afforestation, carbon sequestration).

Why Carbon Pricing Matters

• Internalizes the external costs of greenhouse gas emissions, such as:
  • Damage to agriculture
  • Health impacts from extreme weather
  • Economic losses due to flooding and sea level rise
• Helps shift the burden of climate damage costs from the public to polluters, promoting climate accountability.

(Source: World Bank)