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State and Trends of

Carbon Pricing 2023

WORLDBANK.ORG

2 STATE AND TRENDS OF CARBON PRICING 2023 WORLDBANK.ORG

The World Bank

1818 H Street NW, Washington, DC 20433

Telephone: 202-473-1000; Internet: www.worldbank.org

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and Trends of Carbon Pricing 2023. Washington, DC: World Bank.

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ISBN (electronic): 978-1-4648-2006-9

DOI: 10.1596/978-1-4648-2006-9

FOREWORD

SUMMARY

CHAPTER 1

CHAPTER 2

CHAPTER 3

CHAPTER 4

ANNEXES

3 STATE AND TRENDS OF CARBON PRICING 2023 WORLDBANK.ORG

The development of this report was led by the World Bank and prepared by

experts from the World Bank, adelphi, and Ecologic Institute. Contributions,

including data and information on mandatory cap-and-trade systems, were

provided by the International Carbon Action Partnership. Additional data and

contributions were also provided by Ecosystem Marketplace and CDP.

S&P Global Platts and the Institute for Climate Economics also supported

development of this report.

The World Bank task team responsible for this report was composed of

Joseph Pryor, Kathleen Patroni, Jichong Wu, Alejandra Mazariegos, Samuel Okullo,

Shreya Rangarajan, Seoyi Kim, Harikumar Gadde, and Sandhya Srinivasan.

The consulting team was led by Constanze Haug (adelphi) and Benjamin Görlach

(Ecologic Institute) and included David Hynes, Santiago Ramírez Niembro,

Baran Doda, Anastasia Steinlein, Leon Heckmann, and Victor Ortiz Rivera

(all adelphi) and Michael Jakob and Jonathan Gardiner (Ecologic Institute).

This report beneﬁted greatly from the insights and contributions from:

Andrés Camilo Álvarez-Espinosa; Alexandra Andrea Maite Campmas;

Tomotaka Aoki; Veli Auvinen; Christopher Axelson; Pía Biestro; Rachel Boti-

Douayoua; Chloé Boutron; Marcelo Caﬀera; California Air Resources Board;

Ana Laura Callejas; Marcos Castro; Juan Martín Cháves; Climate Action

Secretariat of the Ministry of Environment and Climate Change Strategy

(British Columbia); David Colín; Julie Côté; Tanguy De Bienassis; Department

of Climate Change, Energy, the Environment and Water (Australia); Department

of Finance (Canada); Department of Finance (Northwest Territories);

Goran Dominioni; Maosheng Duan; Jane Ellis; Dominik Englert; Soﬁe Errendal;

Simon Fellermeyer; Marion Fetet; Andhyta Firselly Utami; Carolyn Fischer;

Nicolas Garceau; Aric Gliesche; Marlen Goerner; Logan Gourmand; Government

of Newfoundland and Labrador; Government of Prince Edward Island;

Government of Saskatchewan; Mary Grady; Adriana Gutiérrez; Stephane

Hallegatte; Hawaii State Department of Business, Economic Development,

and Tourism; Hawaii State Energy Oﬃce; Dirk Heine; Rurik Holmberg;

Andrew Howard; Yuji Jigata; Louise Kessler; Hyemee Kim; Jussi Kiviluoto;

Camille Leboeuf; Luca Lo Re; Emídio Lopes; Martina Bosi; Satoshi Mikami;

Ministry of Environment and Protected Areas (Alberta); Ministry of Finance

(British Columbia); Ministry of Finance (Luxembourg); Ministry of the

Environment, Climate, and Sustainable Development (Luxembourg);

Nandita Molloy; Jesús Abraham Bartolomé Lasa; Mariza Montes de Oca Leon;

Marco Murcia; Kuhle Mxakaza; New Brunswick Department of Environment

and Local Government; Lauren Nichols; Eduardo Piquero; Plan Vivo Foundation

Secretariat; Methmali Rajaguru; Gerardo Ramírez; Kim Ricard; Susanne Riedener;

Marisol Rivera-Planter; Robin Rix; Ángela Rodríguez; Isabelle Rojon; Puttipar

Rotkittikhun; Jacqueline Ruesga; Gabriel Saive; Rico Salgmann; Hugh Salway;

Marissa Santikarn; Arantzazu Mojarrieta Sanz; Juan Pedro Searle; Secretary

of Energy, Ministry of Economy (Argentina); Chris Shipley; William Space;

Randall Spalding-Fecher; Vikash Talyan; Jonas Teusch; Gemma Torras Vives;

Maiko Uga; Under Secretariat of Public Revenue, Ministry of Economy

(Argentina); Andrea Victoria Garcia Salinas; Isabella Villanueva;

Anthony Weatherby; Urko Díez Webster; Klas Wetterberg; Hui-Fen Yeh;

Yuan Fang Yeo; Mourad Ziani; Uri Ziskind.

Report design was done by Hitmanmedia.com and editing was done by

EpsteinWords.

This report has been developed as part of the Technical Work Program under

the Partnership for Market Implementation.

A FOREST TRENDS INITIATIVE

FOREWORD

SUMMARY

CHAPTER 1

CHAPTER 2

CHAPTER 3

CHAPTER 4

ANNEXES

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StateandTrendsofCarbonPricing2023WORLDBANK.ORG2STATEANDTRENDSOFCARBONPRICING2023WORLDBANK.ORG©2023InternationalBankforReconstructionandDevelopmentTheWorldBank1818HStreetNW,Washington,DC20433Telephone:202-473-1000;Internet:www.worldbank.orgSomerightsreserved123426252423ThisworkisaproductofthestaffoftheWorldBankwithexternalcontributions.Thefindings,interpretations,andconclusionsexpressedinthisworkdonotnecessarilyreflecttheviewsoftheWorldBank,itsBoardofExecutiveDirectors,orthegovernmentstheyrepresent.theWorldBankdoesnotguaranteetheaccuracy,completeness,orcurrencyofthedataincludedinthisworkanddoesnotassumeresponsibilityforanyerrors,omissions,ordiscrepanciesintheinformation,orliabilitywithrespecttotheuseoforfailuretousetheinformation,methods,processes,orconclusionssetforth.Theboundaries,colors,denominations,andotherinformationshownonanymapinthisworkdonotimplyanyjudgmentonthepartoftheWorldBankconcerningthelegalstatusofanyterritoryortheendorsementoracceptanceofsuchboundaries.NothinghereinshallconstituteorbeconstruedorconsideredtobealimitationuponorwaiveroftheprivilegesandimmunitiesoftheWorldBank,allofwhicharespecificallyreserved.RIGHTSANDPERMISSIONSThisworkisavailableundertheCreativeCommonsAttribution3.0IGOlicense(CCBY3.0IGO)http://creativecommons.org/licenses/by/3.0/igo.UndertheCreativeCommonsAttributionlicense,youarefreetocopy,distribute,transmit,andadaptthiswork,includingforcommercialpurposes,underthefollowingconditions:Attribution—Pleasecitetheworkasfollows:WorldBank.2023.StateandTrendsofCarbonPricing2023.Washington,DC:WorldBank.doi:10.1596/978-1-4648-2006-9.License:CreativeCommonsAttributionCCBY3.0IGO.Translations—Ifyoucreateatranslationofthiswork,pleaseaddthefollowingdisclaimeralongwiththeattribution:ThistranslationwasnotcreatedbytheWorldBankandshouldnotbeconsideredanofficialWorldBanktranslation.TheWorldBankshallnotbeliableforanycontentorerrorinthistranslation.Adaptations—Ifyoucreateanadaptationofthiswork,pleaseaddthefollowingdisclaimeralongwiththeattribution:ThisisanadaptationofanoriginalworkbytheWorldBank.ViewsandopinionsexpressedintheadaptationarethesoleresponsibilityoftheauthororauthorsoftheadaptationandarenotendorsedbytheWorldBank.Third-partycontent—TheWorldBankdoesnotnecessarilyowneachcomponentofthecontentcontainedwithinthework.TheWorldBankthereforedoesnotwarrantthattheuseofanythird-party-ownedindividualcomponentorpartcontainedintheworkwillnotinfringeontherightsofthosethirdparties.Theriskofclaimsresultingfromsuchinfringementrestssolelywithyou.Ifyouwishtoreuseacomponentofthework,itisyourresponsibilitytodeterminewhetherpermissionisneededforthatre-useandtoobtainpermissionfromthecopyrightowner.Examplesofcomponentscaninclude,butarenotlimitedto,tables,figures,orimages.AllqueriesonrightsandlicensesshouldbeaddressedtoWorldBankPublications,theWorldBankGroup,1818HStreetNW,Washington,DC20433,USA;e-mail:pubrights@worldbank.org.ISBN(electronic):978-1-4648-2006-9DOI:10.1596/978-1-4648-2006-9FOREWORDSUMMARYCHAPTER1CHAPTER2CHAPTER3CHAPTER4ANNEXES3STATEANDTRENDSOFCARBONPRICING2023WORLDBANK.ORGThedevelopmentofthisreportwasledbytheWorldBankandpreparedbyexpertsfromtheWorldBank,adelphi,andEcologicInstitute.Contributions,includingdataandinformationonmandatorycap-and-tradesystems,wereprovidedbytheInternationalCarbonActionPartnership.AdditionaldataandcontributionswerealsoprovidedbyEcosystemMarketplaceandCDP.S&PGlobalPlattsandtheInstituteforClimateEconomicsalsosupporteddevelopmentofthisreport.TheWorldBanktaskteamresponsibleforthisreportwascomposedofJosephPryor,KathleenPatroni,JichongWu,AlejandraMazariegos,SamuelOkullo,ShreyaRangarajan,SeoyiKim,HarikumarGadde,andSandhyaSrinivasan.TheconsultingteamwasledbyConstanzeHaug(adelphi)andBenjaminGörlach(EcologicInstitute)andincludedDavidHynes,SantiagoRamírezNiembro,BaranDoda,AnastasiaSteinlein,LeonHeckmann,andVictorOrtizRivera(alladelphi)andMichaelJakobandJonathanGardiner(EcologicInstitute).Thisreportbenefitedgreatlyfromtheinsightsandcontributionsfrom:AndrésCamiloÁlvarez-Espinosa;AlexandraAndreaMaiteCampmas;TomotakaAoki;VeliAuvinen;ChristopherAxelson;PíaBiestro;RachelBoti-Douayoua;ChloéBoutron;MarceloCaffera;CaliforniaAirResourcesBoard;AnaLauraCallejas;MarcosCastro;JuanMartínCháves;ClimateActionSecretariatoftheMinistryofEnvironmentandClimateChangeStrategy(BritishColumbia);DavidColín;JulieCôté;TanguyDeBienassis;DepartmentofClimateChange,Energy,theEnvironmentandWater(Australia);DepartmentofFinance(Canada);DepartmentofFinance(NorthwestTerritories);GoranDominioni;MaoshengDuan;JaneEllis;DominikEnglert;SofieErrendal;SimonFellermeyer;MarionFetet;AndhytaFirsellyUtami;CarolynFischer;NicolasGarceau;AricGliesche;MarlenGoerner;LoganGourmand;GovernmentofNewfoundlandandLabrador;GovernmentofPrinceEdwardIsland;GovernmentofSaskatchewan;MaryGrady;AdrianaGutiérrez;StephaneHallegatte;HawaiiStateDepartmentofBusiness,EconomicDevelopment,andTourism;HawaiiStateEnergyOffice;DirkHeine;RurikHolmberg;AndrewHoward;YujiJigata;LouiseKessler;HyemeeKim;JussiKiviluoto;CamilleLeboeuf;LucaLoRe;EmídioLopes;MartinaBosi;SatoshiMikami;MinistryofEnvironmentandProtectedAreas(Alberta);MinistryofFinance(BritishColumbia);MinistryofFinance(Luxembourg);MinistryoftheEnvironment,Climate,andSustainableDevelopment(Luxembourg);NanditaMolloy;JesúsAbrahamBartoloméLasa;MarizaMontesdeOcaLeon;MarcoMurcia;KuhleMxakaza;NewBrunswickDepartmentofEnvironmentandLocalGovernment;LaurenNichols;EduardoPiquero;PlanVivoFoundationSecretariat;MethmaliRajaguru;GerardoRamírez;KimRicard;SusanneRiedener;MarisolRivera-Planter;RobinRix;ÁngelaRodríguez;IsabelleRojon;PuttiparRotkittikhun;JacquelineRuesga;GabrielSaive;RicoSalgmann;HughSalway;MarissaSantikarn;ArantzazuMojarrietaSanz;JuanPedroSearle;SecretaryofEnergy,MinistryofEconomy(Argentina);ChrisShipley;WilliamSpace;RandallSpalding-Fecher;VikashTalyan;JonasTeusch;GemmaTorrasVives;MaikoUga;UnderSecretariatofPublicRevenue,MinistryofEconomy(Argentina);AndreaVictoriaGarciaSalinas;IsabellaVillanueva;AnthonyWeatherby;UrkoDíezWebster;KlasWetterberg;Hui-FenYeh;YuanFangYeo;MouradZiani;UriZiskind.ReportdesignwasdonebyHitmanmedia.comandeditingwasdonebyEpsteinWords.ThisreporthasbeendevelopedaspartoftheTechnicalWorkProgramunderthePartnershipforMarketImplementation.AFORESTTRENDSINITIATIVEFOREWORDSUMMARYCHAPTER1CHAPTER2CHAPTER3CHAPTER4ANNEXES4STATEANDTRENDSOFCARBONPRICING2023WORLDBANK.ORGFIGURE1PriceevolutioninselectedETSsfrom2018to202316FIGURE2KeydriversorrecentETSandCarbonTaxpricedevelopments19FIGURE3PricesandcoverageacrossETSsandcarbontaxes21FIGURE4Internalcarbonpricing–distributionofpricesacrossindustries22FIGURE5MapofcarbontaxesandETSs23FIGURE6ShareofglobalGHGemissionscoveredbydirectcarbonpricinginstruments24FIGURE7EvolutionofglobalrevenuesfromcarbontaxesandETSsovertime(nominal)26FIGURE8Scaleandusesofcarbonrevenuein202128FIGURE9CarbontaxesandETSsbyworldregionsandincomelevels–implemented,scheduled,orunderconsideration29FIGURE10MappingpricesandcoverageofcarbontaxesandETSs30FIGURE11Globalvolumeofissuancesbycreditingmechanismtype(2018–2022)35FIGURE12Mapofnationalandsubnationalcreditingmechanisms36FIGURE13Percentageoftotalissuancebyprojectcategory37FIGURE14Pricesofstandardizedcarboncreditcontracts2021–202341FIGURE15Article6.2bilateralagreements47BOX1Definitions:carbonpricingpolicies11BOX2ETSandcarbontaxpricesandinflation17BOX3Trackingbroadercarbonprices:beyondETSsandcarbontaxes18BOX4Internalcarbonpricesappliedacrossindustries20BOX5Internalcarbonpricing22BOX6Usingcarbonpricingasafiscaltool:Mexicosubnationalscasestudy32BOX7Definitions:carboncreditingmarketsandmechanisms34BOX8Carboncreditmarketsasavehicletofinanceforestpreservation38BOX9Raisingtheintegrityofsupplyanddemandinvoluntarycarboncreditmarkets44BOX10TransitioningfromthecleandevelopmentmechanismtoArticle6.446TABLEC.1CarbonpricingdevelopmentsinselectedCanadianprovincesandterritories60TABLEC.2DevelopmentsinChina’ssubnationalpilots61TABLEC.3CarbonpricingdevelopmentsinselectedMexicanstates63TABLEC.4CarbonpricingdevelopmentsinselectedUSstates66ListofFiguresListofBoxesListofTablesFOREWORDSUMMARYCHAPTER1CHAPTER2CHAPTER3CHAPTER4ANNEXES5STATEANDTRENDSOFCARBONPRICING2023WORLDBANK.ORGListofAbbreviationsACCUAustralianCarbonCreditUnitsETSEmissionstradingsystemNOKNorwegiankroneBCBritishColumbiaEUEuropeanUnionOBPSOutput-basedpricingsystem(Canada)BCABordercarbonadjustmentEUREuroOECDOrganisationforEconomicCo-operationandDevelopmentCADCanadiandollarG7GroupofSevenOTCOver-the-counterCADTrustClimateActionDataTrustGDPGrossdomesticproductPATPerform,Achieve,andTradeScheme(India)CARBCaliforniaAirResourcesBoardGHGGreenhousegasPMIPartnershipforMarketImplementationCBAMCarbonborderadjustmentmechanismICAOInternationalCivilAviationOrganizationPSSPerformancestandardssystem(Canada)CCDRCountryChangeandDevelopmentReportICAPInternationalCarbonActionPartnershipPVCPlanVivocertificateCCMCostcontainmentmechanismICPInternalcarbonpriceREDD+ReducingEmissionsfromDeforestationandForestDegradationCCRCostcontainmentreserveICVCMIntegrityCouncilfortheVoluntaryCarbonMarketRGGIRegionalGreenhouseGasInitiativeCCPsCoreCarbonPrinciplesIEAInternationalEnergyAgencySDGSustainableDevelopmentGoalCDMCleanDevelopmentMechanismIETAInternationalEmissionsTradingAssociationSEMARNATMinistryofEnvironmentandNaturalResources(Mexico)CERCertifiedemissionreductionIMFInternationalMonetaryFundSGDSingaporedollarCHFSwissfrancIMOInternationalMaritimeOrganizationtCO2MetrictonsofcarbondioxideCNYChineseyuanIPCCIntergovernmentalPanelonClimateChangetCO2eMetrictonsofcarbondioxideequivalentCO2CarbondioxideITMOInternationallytransferredmitigationoutcomeTIERTechnologyInnovationsandEmissionsReduction(Canada)COPConferenceofthePartiesJCMJointCreditingMechanismUMAUnitofMeasurementandUpdate(Mexico)COP212015UnitedNationsClimateChangeConference(21stConferenceoftheParties)LNGLiquefiednaturalgasUKUnitedKingdomCOP262021UnitedNationsClimateChangeConference(26thConferenceoftheParties)MEMRMinistryofEnergyandMineralResources(Indonesia)UNUnitedNationsCOP272022UnitedNationsClimateChangeConference(27thConferenceoftheParties)MoUMemorandumofunderstandingUNFCCCUnitedNationsFrameworkConventiononClimateChangeCOP282023UnitedNationsClimateChangeConference(28thConferenceoftheParties)MtCO2MillionmetrictonsofcarbondioxideUSUnitedStatesCORSIACarbonOffsettingandReductionSchemeforInternationalAviationMRVMonitoring,reporting,andverificationUSDUnitedStatesdollarDKKDanishkroneMXNMexicanpesoUYUUruguayanpesoEDGAREmissionsDatabaseforGlobalAtmosphericResearchNDCNationallydeterminedcontributionVATValue-addedtaxEEBEcologyandEnvironmentBureau(China)NECRNetEffectiveCarbonRatesVCMIVoluntaryCarbonMarketsIntegrityInitiativeETFExchange-tradedfundNGFSNetworkofCentralBanksandSupervisorsGreeningtheFinancialSystemVCSVerifiedCarbonStandardFOREWORDSUMMARYCHAPTER1CHAPTER2CHAPTER3CHAPTER4ANNEXES6STATEANDTRENDSOFCARBONPRICING2023WORLDBANK.ORGTableofContentsForewordExecutiveSummaryChapter1IntroductionAnnexADefinitionsAnnexCCarbonTaxandETSUpdateChapter4ConclusionChapter2CarbonTaxesandEmissionsTradingSystemsAnnexBMethodologiesandSourcesEndnotesChapter3CarbonCrediting—MarketsandMechanismsAnnexDCreditingMechanismUpdatesFOREWORDSUMMARYCHAPTER1CHAPTER2CHAPTER3CHAPTER4ANNEXES7STATEANDTRENDSOFCARBONPRICING2023WORLDBANK.ORGForewordCarbonmarketsandmechanismshavesteadilyevolvedsincethefirstStateandTrendsreportwaspublished10yearsago.Theshareofglobalemissionscoveredbycarbontaxesandemissionstradingsystems(ETSs)hasgrownfrom7%toaround23%.Jurisdictionscontinuetointroducenewcarbonpricinginstruments,suchasIndonesia’sETSthisyear,andcovernewemissionsources,suchasaviation.GovernmentrevenuesfromcarbontaxesandETSshavegrownnearlyfivefoldaspolicieshaveevolvedanddiversifiedtoreflectincreasedambition.Andvoluntaryactionaroundcarbonmarketshasproliferatedascorporationshavebecomethebiggestsourceofdemandforcarboncredits.Overthedecade,theStateandTrendsreportandtheCarbonPricingDashboardhaveprovidedobjectiveandup-to-dateinformationondirectcarbonpricing.Theyhaveguidedpolicymakers,supportedacademicandanalyticalwork,andinformedtheprivatesectorandnongovernmentalorganizationsalike.Thisyear’sreportshowsthatgovernmentsareprioritizingdirectcarbonpricingpoliciestoreduceemissions,evenindifficulteconomictimes.Theeconomicturmoilandgeopoliticalinstabilityofthispastyearthreatenedtodivertattentionfromthepressingneedtoactonclimate.Despitethesepressures,ETSsandcarbontaxeshaveprovenresilient;severaljurisdictionseitherdeliveredonexistingplansfornewETSsortaxes,increasedtheirambition,orannouncedfurtherproposalsfordevelopingnewinitiativesinthecomingyears.RecentdevelopmentsonArticle6suggestapathwayforinternationalcarbonmarkets,thoughmoreworkisneededtobuildtheadministrativecapacityforcountriestoengagefurther.Governments,theprivatesector,andothersarethinkingaboutcarbonmarketsandpricinginincreasinglysophisticatedways.Directcarbonpricingisbeingviewedthroughabroaderlens,notonlyasakeymitigationpolicybutalsoasatooltoraiserevenue,driveinnovation,andhelpdeliveronbroadersustainabilityanddevelopmentgoals.TheWorldBank’spioneeringnewdiagnostic,theCountryClimateandDevelopmentReport(CCDR),hasemphasizedthepotentialfordirectcarbonpricingpoliciestosupportcountriesontheirdevelopmentjourneys.Thereisstillalongpathaheadevenastheneedformoreprogressintensifies.Climate-relatednaturaldisastersin2022costlives,causedbillionsofdollarsofdamage,anddisplacedmillions,particularlyinthedevelopingworld.TheIntergovernmentalPanelonClimateChange’sSixthAssessmentReportlaidbaretheincreasinglydangerousandirreversiblerisksoffailingtoact.Butthereportalsoofferedhopethatwecanstillpreventtheworsteffectsifweactnowtotransitiontoalow-carbonfuture.Introducingapricesignalforclimatemitigationiscriticaltodrivinginvestmentandbehaviorchangetoloweremissions.Carbonpricingmustcontinuetogrow,bothintermsofcoverageandprice,todrivethetransformationalchangeneededtomeettheParistemperaturegoals.However,governmentsneedtoconsidertrade-offswhendecidingwhichcarbonpricingapproachtouse:ETSs,carbontaxesandcarboncrediting,andinternationalcarbonmarketseachhavetheirplace.TheWorldBankissupportingmanycountriestoengagewiththefullrangeofcarbonpricingpolicies—includingthroughthePartnershipforMarketImplementation(PMI)program,whichprovidestechnicalassistancefordomesticcarbonpricingandoperationalizingArticle6oftheParisAgreement.StateandTrendstakesstockofprogressandreiteratestheWorldBank’scommitmenttoworkwithgovernmentsandstakeholderstoputapriceoncarbontoaccelerateclimateaction.JenniferSara,ClimateChangeGlobalDirector,WorldBankGroupFOREWORDSUMMARYCHAPTER1CHAPTER2CHAPTER3CHAPTER4ANNEXES8STATEANDTRENDSOFCARBONPRICING2023WORLDBANK.ORG•Facingaglobalenergycrisisandhighinflation,manycountriesrespondedwithreliefmeasures:loweringenergypricesforbusinessesandhouseholdsthroughchangestoenergytaxes,fossilfuelsubsidies,orpricecontrols,orbymakingdirectpayments.•Thesemeasuressawalreadyhighlevelsofgovernmentdebtcontinuetoclimb.•Despitethesechallenges,therewascontinuedmomentumforclimateaction.Severalhigh-emittingcountriesstrengtheneddomesticclimatepoliciesandtargets,thoughglobaleffortsstillfallshortofwhatisrequired.•Inthiscontext,thepoliticaleconomyofcarbonpricinghasbecomeevenmorecomplex.THEPASTYEARHASSEENGOVERNMENTSFACECHALLENGESONSEVERALFRONTS•PricesincreasedinhalfofETSsorcarbontaxes,althoughinrealtermssurginginflationwillhaveoffsetsomeoftheincrease.•TherewereonlyafewinstanceswheregovernmentswoundbackETSsorcarbontaxesinresponsetotheenergycrisisbydelayingthestartofanewinstrument,postponingaplannedexpansionorpriceincrease,orinonecaserepealingacarbontax.•Withseveralnewinstrumentslaunchedandsomescopeexpansions,thenumberofimplementedinstrumentsincreasedto73withtheshareofglobalGHGemissionscoveredaround23%.ETSsANDCARBONTAXESHAVEWEATHEREDTHE2022GLOBALENERGYCRISISRELATIVELYWELL•Governmentscontinuetofacetrade-offsbetweendifferentobjectives,suchasincreasingrevenue,promotingcommunityacceptance,andmanaginginternationalcompetitiveness.•RevenuesfromETSsandcarbontaxesareoftenusedforspecificpurposes—almost40%oftherevenueisearmarkedforgreenspending,and10%isusedtocompensatehouseholdsorbusinesses.Bothareseenaswaystoincreasesupportforthesepolicies.•TherevenuepotentialofETSsandcarbontaxeshasbecomemorerelevantinlightofincreasingpressuresonpublicbudgets.RECORDHIGHREVENUESFROMETSsANDCARBONTAXESAPPROACHEDUSD100BILLIONExecutiveSummaryFOREWORDSUMMARYCHAPTER1CHAPTER2CHAPTER3CHAPTER4ANNEXES9STATEANDTRENDSOFCARBONPRICING2023WORLDBANK.ORG•Mostexistinginstrumentsareinhigh-incomecountriesinNorthAmericaandEurope,ateitherthenational,subnational,orregionallevel.High-incomejurisdictionsaccountforthehighestcarbonprices.•ThereisonlyoneinstrumentintheMiddleEastandAfricaregion.However,severalAfricancountriesareexploringoptionsandtakingpreparatorysteps.•Interestfromemergingeconomiesisdrivenbytheneedforclimatechangemitigationpolicybutalsomanagingtransitionrisks,exploringrevenueopportunities,andpreparingforEuropeanUnionaccession.UPTAKEOFETSsANDCARBONTAXESARERISINGINEMERGINGECONOMIES;HIGH-INCOMECOUNTRIESSTILLDOMINATE•Bothissuancesandretirementsofcarboncreditsfellslightlycomparedto2021,althoughtheyremainsignificantlyabovelevelsinprecedingyears.•Voluntarydemandfromcompaniesremainstheprimarydriverofmarketactivity,butcompliancedemandcouldbecomemoreimportant.•Pricesandpricetrendsvaried:pricesforexchange-tradedcreditsdeclinedacrossallcategories,especiallythosefromnature-basedprojects,whilesomeparticipantshaveseenpricesincreaseinover-the-countertransactions.•Macroeconomicconditions,prominentcritiquesofcarboncreditsandoffsetting,andbottlenecksinissuanceareamongtheapparentcausesofdynamicsoverthepastyear.CARBONCREDITMARKETSEXPERIENCEDASLOWDOWNAFTERYEARSOFRAPIDGROWTH•Newinvestors,financialproducts,technologicalplatforms,andserviceprovidersarelayingthefoundationsforwhatsomeexpectwillbeadecadeofsignificantgrowth.•Differentinitiativesseektopromotestandardizationandimprovetransparencyincarboncreditmarkets—seekingtoencouragemarketgrowthandintegrityofcorporateaction.•ImplementationofArticle6ismovingforwardasmorecountriessignbilateralcooperationagreementsandthefirstactivitiestogenerateauthorizedemissionsreductionsaredeveloped.CARBONCREDITMARKETSCONTINUETODIVERSIFYANDBECOMEMORESOPHISTICATEDExecutiveSummaryFOREWORDSUMMARYCHAPTER1CHAPTER2CHAPTER3CHAPTER4ANNEXESChapter1Introduction11STATEANDTRENDSOFCARBONPRICING2023WORLDBANK.ORGBOX1DEFINITIONS:CARBONPRICINGPOLICIESThisreportfocusesondirectcarbonpricinginstruments—thosethatprovideaclearpricesignalwiththeaimofreducingGHGemissions.TheseincludeETSs,carbontaxes,andcarboncrediting.AnETSlimitsemissionsfromcoveredentitiesbyissuingtradableemissionunitsthatentitiescanusetomeettheircomplianceobligations.ETSscanbedesignedindifferentways:themostcommonarecap-and-tradeETSsthatsetanoveralllimitforemissionsfromcoveredentitiesandrate-basedsystemswheretotalemissionsarenotcappedbutindividualentitiesareallocatedaperformancebenchmarkthatservesasalimitontheirnetemissions.Acarbontaximposesafeeontheemissionsproduced(ortheemissionsembodiedinanamountoffuel).Acarboncreditingmechanismgeneratestradablecertificatesrepresentingemissionreductions.IndirectcarbonpricingreferstootherpoliciesthatchangethepriceofproductsassociatedwithGHGemissionsinwaysthatarenotdirectlyproportionaltotherelativeemissionsassociatedwiththoseproducts.Theseinstruments(suchasfuelexcisetaxes)provideacarbonpricesignal,eventhoughtheyarenotusuallyimplementedtoachieveclimateoutcomes.WhileBox3providessomefurtherinformationonrecenttrendsinindirectcarbonpricing,thesepoliciesarenotincludedinthecoreanalysisandtextofthisreport.FurtherinformationondefinitionscanbefoundinAnnexA.Directcarbonpricingpoliciesaretoutedasanefficientandeffectiveclimatemitigationpolicy,buttheiruptakeandimpactdependonmanyfactors(seeBox1fordefinitions).Acarbonpriceprovidesaneconomicsignal,allowingmarkets(insteadofgovernments)todeterminewhereemissionscanbereducedforthelowestcost.Inconsideringthesepolicies,governmentsweighthepoliticaleconomyimplicationsofthedifferentoptions,inparticularhowtheywillaffectconsumers(particularlythroughenergyprices),howtheywillaffectgovernmentrevenue,andtheurgencyofreducingemissions.iGovernmentsalsoconsiderthebroaderpolicylandscape—howdirectandindirectcarbonpricinginteract—aswellastheappetiteforalternativeclimatechangemitigationpolicyapproaches.Broaderdevelopmentsincludingeconomicgrowthandtrendsinenergymarkets,voterpreferences,andthestateofpublicfinancesallshapehowandwhetherdirectcarbonpricinginstrumentsareconsidered,adopted,reformed,orperhapsinsomecasesrepealed.Further,forETSs,wherethecarbonpriceemergesasafunctionofthesupplyanddemandforallowances,thesebroaderfactorscandirectlyandindirectlyaffectpricesdaybyday.Againstthisbackdrop,thisreportprovidesabriefoverviewofthekeytrendsshapingdirectcarbonpricingpoliciesoverthepastyear,beforedetailingtheobservedchangesinthesepoliciesoverthesameperiod.1Theyear2022wasmarkedbyaglobalenergycrisisthatcontributedtohighinflationandacost-of-livingcrisisinmanypartsoftheworld.ThequickeconomicreboundfromtheCOVID-19pandemichadalreadystartedtodriveupenergy(i)Forfurtherreadingonthepoliticaleconomyofcarbonpricingsee,e.g.,G.Dolphin,M.G.Pollitt,andD.M.Newbery,“ThePoliticalEconomyofCarbonPricing:APanelAnalysis,”OxfordEconomicPapers72,no.2(April2020):472–500;WorldBankGroup,“TheFASTERPrinciplesforSuccessfulCarbonPricing:AnApproachBasedonInitialExperience,”2017;D.Victor,E.Toder,R.Repetto,J.Bordoff,J.Stock,andM.Mildenberger,“ThePoliticalEconomyofCarbonPricing:PresentationsandDiscussion,”presentedatGlobalHarmonizedCarbonPricing:LookingBeyondParis,YaleCenterfortheStudyofGlobalizationInternationalConference,May27–28,2015.Theglobalenergycrisisposedsignificantchallengesforenergymarketsandtheworldeconomyin2022.Governmentshaverespondedwithmeasurestoshieldconsumersfrompricehikes,addingtofiscalpressuresaccumulatedduringthepandemic.Inthiscontext,thepoliticaleconomyofimplementingdirectcarbonpricingpolicieshasbecomemorecomplex.Ontheonehand,theincreasingurgencyofaddressingtheclimatecrisis,thebenefitsofdiversifyingenergysupplies,andtheneedtoshoreupgovernmentrevenueshaveprovidedanevenstrongerrationaleforintroducingnewandstrengtheningexistingcarbonpricingpolicies.Ontheotherhand,pressureongovernmentstoconsideranymeasurestoreducepricesintheshorttermhasbeenworkingagainstemissionstradingsystems(ETSs)andcarbontaxes.Thisreportprovidesanupdateondevelopmentsinexistingandplanneddirectcarbonpricingpolicies(e.g.,ETSs,carbontaxes,andcreditingmechanisms)overthepastyear,revealinghowthesecontextualfactorshaveaffectedprices,uptake,reform,andplansforthesepolicies.FOREWORDSUMMARYCHAPTER1CHAPTER2CHAPTER3CHAPTER4ANNEXES12STATEANDTRENDSOFCARBONPRICING2023WORLDBANK.ORGdemandandpricesin2021.Russia’sinvasionofUkrainegreatlyamplifiedthiseffect,pushingupfossilfuelpricesevenfartherandtounprecedentedheights.Combinedwithsupplychaindisruptionsintheaftermathofthepandemic,theenergycrisisdroveupglobalinflationtoitshighestlevelin30years,triggeringtightermonetarypolicyinmostcountries.Asaconsequence,globaleconomicgrowthslowedin2022andisexpectedtodeclineevenmoresharplyby1.7%to2.9%in2023,significantlybelowthehistoricalaverageoverthepasttwodecades.2Highlevelsofinflation,causedbyhigherpricesnotjustforenergybutalsofoodandhousing,haveledtoacost-of-livingcrisisaffectingparticularlydevelopingcountriesandthosewithlowincomes.3Ascountriessufferedfromrecord-highfossilfuelprices,governmentsrespondedbyprioritizingreliefmeasuresforhouseholdsandbusinesses.Theconcernsoverpoverty,especiallyenergypoverty,werefeltworldwide.Inthedevelopingworld,theenergypricespikesthreatenedtorollbackprogressonuniversalaccesstoelectricity,andtheInternationalEnergyAgency(IEA)warnedthat“almost100millionpeoplemaybepushedbackintorelianceonfirewoodforcookinginsteadofcleaner,healthiersolutions.”4Inresponse,manycountriesprovidedtemporaryenergypricereliefforconsumers.MostEuropeancountrieshavetemporarilyloweredvalue-addedtax(VAT)onfuelsandotherenergytaxes,regulatedtheretailpriceoffuels,orprovideddirectassistancetofuelconsumers.5Othernations,includingAustralia,Mexico,andSouthAfrica,temporarilysuspendedorreducedfederalfuelexcisetaxesordelayedplannedincreases.6Somepoliciesweretargetedtowardthosemostvulnerabletohighprices;theRepublicofKorea,forexample,providedvouchersforenergyexpensestoaround1.2millionlow-incomehouseholds.7Thecombinationoftheeconomicturmoilin2022andthepandemichangoverhasleftmanygovernmentsfacingfiscalpressures.HavingspentheavilyinresponsetotheCOVID-19pandemic(withamountsexceeding5%oreven10%ofgrossdomesticproduct(GDP)inmostindustrializedandmanyemergingeconomies),reliefmeasurestoaddresstheenergycrisishaveputanadditionaldentinnationalbudgetsoverthepastyear.8AccordingtotheIEA,fossilfuelsubsidieshitanall-timehighin2022,risingbeyondUSD1trillion,anddoublingcomparedtotheir2021levels.9Asaresult,thedevelopingworldnowfacesarecordamountofdebt,amountingtonearlyUSD100trillioninearly2023.10Atthesametimetaxrevenueisdeclininginmanyplacesduetosloweconomicgrowth,andhigherinterestratesmakeservicingthedebtmoredifficult.Allthissignificantlyconstrainsgovernments’roomtomaneuver.Meanwhile,theurgencyoftacklingtheclimatecrisisisasstrongasever.Extremeweathereventshitmostregionsoftheworldin2022.Large-scalefloodingcoveredone-thirdofPakistan’sterritory;extremeheatanddroughtaffectedpartsofEurope,China,andIndia,breakinglocaltemperaturerecordsbylargemargins;andthemostseveredroughtonrecordhitthehornofAfrica,putting22millionpeopleatriskofstarvation.11Intermsofinternationalclimatepolicy,the27thConferenceofthePartiesoftheUnitedNationsFrameworkConventiononClimateChange(COP27)madeprogressinsomeareas,butnotothers.Thelossanddamagefund,aimedatassistingvulnerablecountriesinmanagingtheeffectsofclimatedisasters,sawadvancement.WorkstreamstooperationalizeArticle6oftheParisAgreementalsomovedahead,anddelegatesatCOP28intheUnitedArabEmirateswillfurtheraddressthisprocess.TheneedfortransparencyandaccountabilityingoalsettingandreportingbynonstateactorsreceivedsignificantattentionthroughthereportoftheHigh-LevelExpertGrouponNetZeroEmissionsCommitmentsofNon-StateEntities.12However,thesummitfellshortofexpectationsbyfailingtocommittothephasingoutoffossilfuelsandmakingonlylimitedprogressindiscussionsandpledgesmadeonclimatefinance.“Thedevelopingworldnowfacesarecordamountofdebt,amountingtonearlyUSD100trillioninearly2023.”FOREWORDSUMMARYCHAPTER1CHAPTER2CHAPTER3CHAPTER4ANNEXES13STATEANDTRENDSOFCARBONPRICING2023WORLDBANK.ORG“ThelatestUnitedNationsEnvironmentProgrammeemissionsgapreportmakesclearthatwithoutimminentlarge-scaletransformationoftheglobaleconomy,thecollectivegoaloflimitingglobaltemperatureincreaseto1.5°Cwillbeoutofreach.”Domestically,manynationsforgedaheadwithclimateactionin2022.Respondingtotheever-increasingurgencyoftheclimatecrisis,butalsodrivenbytherisingpriceoffossilfuels,manycountriesaroundtheworldsetnewclimatetargetsorprogressedconcretepoliciestoreduceemissions.Australiaupdatingitsnationallydeterminedcontribution(NDC)targetandpassinglegislationonclimatetargets,Chileadoptingaclimateframeworklawandanet-zerocommitmentandpoliciestoachieveit,andIndiaupdatingitsNDCtargetandcommittingtoanet-zerotargetarejustsomeexamples.Onthewhole,89countries,13representing86%ofglobalemissions,hadadoptednet-zerocommitmentsattheendof2022,withtargetdatesrangingfrom2035to2060.14Manycountriesalsoadoptedsubstantialmarketandregulatoryincentivesfortheaccelerateddeploymentofrenewableelectricitygenerationcapacity;electrificationofenduses,forexamplewithheatpumpsandelectricvehicles;investmentsinenergyefficiency,electricitystorage,andgridexpansion;andsupportforthedevelopmentofadvancedlow-carbontechnologiessuchasgreenhydrogen.InmanyEuropeancountriesETSsandcarbontaxpoliciesremaincentraltoclimatepolicy,whileothercountriesarefocusingonmoredirectlysupportinggreenindustriesandjobs.Forexample,theInflationReductionActintheUnitedStatesconstitutedahallmarkachievementin2022,includingmeasuressuchastheintroductionofamethaneemissionscharge;subsidiesforelectricvehicles;andincreasedtaxcreditsforcarboncapture,utilization,andstorage.Yet,overall,countriesarestillnotontracktomeetthegoalsoftheParisAgreement.Despiteencouragingsigns,theoverallambitionofclimatepoliciesstillfallsseverelyshortofwhatisrequired.15ThelatestUnitedNationsEnvironmentProgrammeemissionsgapreportmakesclearthatwithoutimminentlarge-scaletransformationoftheglobaleconomy,thecollectivegoaloflimitingglobaltemperatureincreaseto1.5°Cwillbeoutofreach.16Countries’newandupdatedNDCsare,ifimplemented,projectedtoresultinglobalwarmingof2.4°C–2.6°C.17,iiTogetontracktoward1.5°C(withoutsignificantovershoot),theworldmustcutcurrentemissionsby45%until2030.18ThesolutionstoachievethenecessarytransformationarewellknownandtheIntergovernmentalPanelonClimateChange’sSixthAssessmentReportconcludesthatthereissufficientfinanceintheglobalsystemtoclosetherespectiveinvestmentgaps,butmoreactionisneeded.19Inthiscontext,thepoliticaleconomyofdirectcarbonpricingisbecomingmorecomplex.Thesteepriseinconsumerprices,andinparticularenergybills,turnedupthepressureonpolicymakerstoconsideralloptionstoreducecostburdensintheshortterm—includinginsomecasescallsforchangestocarbontaxesandETSs.20Atthesametime,theInternationalMonetaryFundandothersarguedthattheenergycrisisunderlinedtheimportanceofpromotingenergyindependenceandachievingenergysecurityandthatadequatecarbonpricingcansupportthesegoalsbyincentivizingthedeploymentofdomesticrenewablesandenergy-savingmeasures.21Targetedrevenuerecyclingandincentivesforlow-carboninvestmenthavebeenusedtoimproveaccesstolow-carbonalternatives,promotedevelopmentprojects,andreducethecostoflivingforthepoor.Variousstudieshavesuggestedthatdirectcarbonpricingcansupporteconomicdevelopmentobjectivesanddoesnotnecessarilyreduceeconomicgrowthoremployment.22Theneedtodevelopcost-efficientstrategiesforNDCimplementationandthedemonstratedeffectivenessofcarbonpricingatreducingemissionsincreasemomentumfordirectcarbonpricingandmakeitacentralelementformanycountries’planstodeliverontheParisgoals.(ii)TheInternationalEnergyAgencyexpectsatemperatureriseof1.7°Cby2100,underthescenariothatcurrentclimatepledgesandadditionalnationalandsectoralcommitmentstoclimateareachievedinfull.Forfurtherreadingsee,InternationalEnergyAgency,“WorldEconomicOutlook2022,”November2022.FOREWORDSUMMARYCHAPTER1CHAPTER2CHAPTER3CHAPTER4ANNEXES14STATEANDTRENDSOFCARBONPRICING2023WORLDBANK.ORGStateandTrendsofCarbonPricing2023providesacomprehensiveoverviewofthedevelopmentsindirectcarbonpricingduring2022andinto2023.ThereportcoversETSs,carbontaxes,andcarboncreditingmechanisms,eachofwhichprovidesaclearmonetaryincentivedirectlylinkedtotheassociatedvolumeofemissions(seeBox1forshortdefinitionsoftheseinstruments).Thisannualupdateisintendedtoserveasafactualandtimelyreferenceforanyoneinterestedinthesepolicies.Itprovidesinformationonobservablemetrics,suchasprices,coverage,andrevenues,andhowthesehavechanged,particularlyoverthepastyear.Thereportisnotintendedtocriticallyassessparticularapproachesordesignfeatures,butrathertoprovideinsightsontheobservedchangesandtheirdriversandtosummarizehowgovernmentsandothershaverespondedtothechangingpoliticalandeconomiclandscapes.Whileitisnotthemainfocus,thereportalsorecognizesthatthesepoliciesexistinthecontextofabroadercarbonpricesignalthatincludesindirectcarbonpriceslikefuelexcisetaxesandfossilfuelsubsidies(seeBox3).Thisisparticularlyrelevantinayearwheretheenergycrisispromptedgovernmentstoconsiderallavenuestosupportconsumers.Theprevalenceandmagnitudeofindirectcarbonpricingpoliciesstilldwarftheimpactofdirectcarbonpricing:fossilfuelexcisetaxesandsubsidiesareworthoverUSD1trillioneachyear.23Despitethegrowthindirectcarbonpricingoverthepastyears,thisisstillsignificantlylargerthanETSsandcarbontaxes,whichraisedalmostUSD100billioninrevenuesin2022,andthevoluntarycarbonmarket,withatotalannualvalueintheorderofUSD2billion.24Chapters2and3analyzekeytrendsanddevelopmentsincarbonmarketsandpricinggloballyoverthelastyear,focusingoncarbontaxesandETSsinchapter2andcarboncreditingmechanismsinchapter3.Chapter4concludes.AnnexesA–Dprovidekeydefinitionsandfurtherinformationonthelatestdevelopmentsforindividualinitiatives.Formoredetailedinformationonallcarbontaxes,ETSs,andcarboncreditingmechanisms,pleaserefertotheCarbonPricingDashboard(https://carbonpricingdashboard.worldbank.org/).“Theprevalenceandmagnitudeofindirectcarbonpricingpoliciesstilldwarftheimpactofdirectcarbonpricing.”FOREWORDSUMMARYCHAPTER1CHAPTER2CHAPTER3CHAPTER4ANNEXESChapter2CarbonTaxesandEmissionsTradingSystems16STATEANDTRENDSOFCARBONPRICING2023WORLDBANK.ORG2.1GrowthinpricesinETSsandcarbontaxesslowedfollowingyearsofsteepgrowth,butshowedresilienceinthefaceofchallengingcircumstancesOverall,ETSsandcarbontaxeshaveweatheredthe2022globalenergycrisisrelativelywell.Halfoftheseinstrumentssawpricesincrease,whilearoundathird(thosewithfixedprices)sawpricesunchanged.iiiFewerthan15%ofinstrumentssawpricesdecrease.ThebiggestincreaseswereseenintheEuropeanUnionEmissionsTradingSystem(EUETS)linkedwiththeSwitzerlandETS,withtheEUETSpriceexceedingEUR100(USD109)fortheveryfirsttimeinMarch2023(Figure1).ivPricemovementsinthesemarketsweremorevolatilein2022comparedtopreviousyears.However,manyETSssawpricesdrop—byasmuchas35%intheRepublicofKorea.Onlyafewcountriesrespondedtothepoliticalpressuresfromhighenergypricesbydeliberatelyloweringcarbontaxratesorpostponingscheduledincreases.Citingsurgingenergyprices,GermanypostponedbyayeartheplannedincreaseofthepriceinitsnationalETS,vwhichEnergypricesandthecost-of-livingcrisisweremajorfactorsdrivingpricetrendsandinfluencingthedesignandimplementationofcarbontaxesandemissionstradingsystems(ETSs)over2022.Despitethis,thesepoliciesappeartobeweatheringthechallengingpoliticalandeconomiccircumstancesrelativelywell.WhilesomecountriesdirectlyintervenedtokeepcarbontaxorETSpriceslow,mostpricesremainedrelativelystable,andinsomejurisdictions,notablyinEurope,theyincreased.SomeETSsexperiencedmorevolatilityin2022asaresultoffluctuatingenergypricesandtoalesserextentgovernmentresponsestotheenergycrisis.High-incomecountriesstillseethehighestdirectcarbonpricingcoverage,prices,andrevenues.Yetthereisgrowinginterestespeciallyamonglow-andmiddle-incomecountries,especiallyinlightofthepotentialforcarefuldesignandtargeteduseofcarbonpricingrevenuetosupportdevelopmentgoals.CarbonPrice(USD/tCO2e)EUETSCaliforniaC&T/QuébecC&TNewZealandETSRGGI020406080100120Figure01PriceEvolutioninSelectETSsfrom2018-2022201820192020202120222023ChinaNationalETSRepublicofKoreaETSFIGURE1PRICEEVOLUTIONINSELECTEDETSsFROM2018TO2022(iii)Thelevelofthecarbonpricerepresentsthestrengthofthesignaltoavoidorremoveemissions.Ifpricesrise,thereisastrongersignaltodrivefurtheremissionreductions.Ifpricesdecrease,thereislessincentivetoact.See,e.g.,WorldBankGroup,“FASTERPrinciples.”(iv)TheAustriaETSandGermanyETSarenotincludedhere,asthepricesinthesemechanismswillbesetbytherespectivegovernmentsuntil2025.Note:BasedondatafromICAPAllowancePriceExplorer.PricesfortheRGGIinitiativeandforCaliforniaandQuébecCaT,comefromtheprimarymarket,whereasfortheothersystemsthepricesreflectthesecondarymarketFOREWORDSUMMARYCHAPTER1CHAPTER2CHAPTER3CHAPTER4ANNEXES17STATEANDTRENDSOFCARBONPRICING2023WORLDBANK.ORGBOX2ETSANDCARBONTAXPRICESANDINFLATIONGlobally,inflationreachedcloseto8.8%in2022.29Whilesuchinflationlevelsarenotunusualinmanydevelopingcountriesandemergingeconomies,mostadvancedeconomieshadnotexperiencedthemfordecades.Inthiscontext,therearelargerthanusualdifferencesbetweenthenominalchangesinpricesexpressedinlocalcurrencyandtherealchangesinprices.InflationaffectscarbontaxandETSpricesindifferentways,dependingonhowpricesareset.PricesinmostETSsareinfluencedbyinflation;thesepricesaredeterminedbasedondevelopmentsinothermarkets(includingenergycommodities,electricity,etc.),sopricedevelopmentsinthesemarketswouldaffecttheETSprice.IntheEUETSandthelinkedSwitzerlandETS,alargeincreaseinnominalpricesismoremodestinrealterms—theEUETSpriceincreasedby3.9%inrealterms.Ontheotherhand,realdeclinesinothermarketsarelargerthannominalchanges:the35%nominaldecreaseintheKoreanETSisevenlargerinrealtermsataround40%.Severalcarbontaxes,suchasthoseinColombiaandPoland,areinflationadjusted,asaretheauctionfloorpricesintheCaliforniaandQuébecETSs,whichincreaseannuallyby5%plustherateofinflation.Thereisusuallysomedelayinapplyingtheinflationadjustment,sotheseinstrumentsmightstillseedecreasingrealpricesthisyearbutrealincreasesnextyear.Bycontrast,thepriceintheGermannationalETSandcarbontaxesintheCanadianprovinces,Chile,Singapore,andsomeEuropeancountrieswerefixedinnominalterms.Inthesecases,inflationerodesthecarbonpricesignal.Wherepricesarescheduledtoincreasebyapredefinedvalue,realincreasesaresmallerthanthedefinednominalincrease.wasduetomovefromEUR30toEUR35(fromUSD33toUSD38)atthestartof2023,alsodelayingbyayearsubsequentscheduledincreasesin2024and2025.25SouthAfricaextendedanexistingarrangementinitsnationalcarbontax,underwhichcompaniesareallocatedatax-freeemissionsallowance,similarineffecttoafreeallocationinanETS,thoughthisdidnotaffecttheheadlineprice.26Swedenhasalsopostponedplannedpriceincreases.Bycontrast,mostjurisdictionsdidnottonedowntheambitionoftheircarbontaxesorETSs.Scheduledpriceincreasesorothertighteningmeasureswereimplementedforanumberoffixed-priceinstruments.Inmanyinstances,thishappenedautomaticallysincethetaxrateisindexedtoinflation(seeBox2).Insomeotherjurisdictions,pricesincreasedfarmorethaninflation:nationalcarbontaxesinIreland,Luxemburg,theNetherlands,andNorway,aswellastheCanadianfederalcarbontax,allincreasedby20%ormore,wellabovetherespectiveinflationrates.NewZealandcontinuedphasingdownfreeallocationsinitsETS,furthertightenedtheeligibilityandaccountingrulesforfreeallocation,andtightenedthecaptoalignwiththecountry’snationalemissionsbudgets.TheEUETScapcontinueditsplanneddownwardtrajectory,with2.2%,or43millionallowances,cutin2022,andfreeallocationswerealsoreduced.InSwitzerland’sETS,surplusallowancesincirculationtriggeredthenewmarketstabilitymechanism,whichcutauctionvolumesby50%.However,althoughmomentumbehindcarbontaxesandETSsremainedresilient,otherinterventionsinmanyofthesejurisdictionstolowerenergypriceshaveimpactedoverallcarbonpricepolicysignals(seeBox3).Whatismore,severaljurisdictionsmadedecisionstofurtherstrengthenexistingcarbontaxesorETSsinthecomingyears.InNovember2022,Singaporeamendeditscarbonpricingbilltolockinpriceincreasesannouncedin2021.Thiswillincreasethecountry’scarbontaxfromitscurrentrateofSGD5toSGD45(USD4–34)startingin2026,reachingashighasSGD50toSGD80(USD38–60)by2030.Canadaisalsoproceedingwithitsapproachtoincreasethestringencyofitsfederalbenchmark,viwithpricessettoexceedCAD170(USD127)by2030.Basedonthisapproach,theupdated2023FederalFuelChargestartsatCAD65(USD48).SouthAfricahasproposedarisingtrajectoryforitsnationalcarbontax,settoreachatleastUSD30in2030,despiteresistancefrombusinessstakeholders.27TheEUagreedtoafurthertighteningoftheEUETScapaspartofits“Fitfor55”package,withtherateofdeclinedoublingto4.4%annuallybeginningin2028.Finally,intheUSstateofCalifornia,theAirResourcesBoardpublishedits2022ScopingPlanforAchievingClimateNeutralityby2045.28WhiletheplanstillneedstobetranslatedintoconcreteregulatorychangesfortheCaliforniancap-and-tradesystem,thedocumentsetsoutasectoralroadmapforthetransitionawayfromfossilfuels.(v)ThepriceinGermany’snationalETSwillbesetbythegovernmentuntil2025,withthepriceplannedtoriseeachyear.TheupdatedtrajectorywillseeallowancessoldatEUR30(USD33)in2023,EUR35(USD38)in2024,andEUR45(USD49)in2025(seeAnnexAformoredetails).PricesfortheRGGIinitiativeandforCaliforniaandQuébecCaT,comefromtheprimarymarket,whereasfortheothersystemsthepricesreflectthesecondarymarket(vi)TheCanadianfederalgovernmentsetsminimumnationalstringencystandards(thefederal“benchmark”)thatallsubnationalsystemsmustmeettoavoidthefederalsystemapplying.FOREWORDSUMMARYCHAPTER1CHAPTER2CHAPTER3CHAPTER4ANNEXES18STATEANDTRENDSOFCARBONPRICING2023WORLDBANK.ORGBOX3TRACKINGBROADERCARBONPRICES:BEYONDETSsANDCARBONTAXESWhilethisreportfocusesondirectcarbonpricingpolicies—ETSs,carbontaxes,andcarboncrediting—indirectcarbonpricingpoliciessuchasfuelexcisetaxes,fossilfuelsubsidies,anddifferentiatedVATratescanalsoprovideastrongpricesignalthatchangestheeconomicsofhigh-emissionsfuelsorproducts(AnnexAincludesmoredetaileddefinitionsoftheseconcepts).Lookingatbothdirectandindirectpoliciesincombinationgivesamorecompletepictureoftheoverallcarbonpriceincentives.Analysiscombiningdirectandindirectcarbonpricingpoliciesgivesabettersenseofwhichemissionsarecoveredbyacarbonpricesignal,thestrengthofthesignal,andhowthislandscapeevolvesovertime.Thiscanshow,forexample,whereapositivecarbonpriceiscanceledoutbynegativecarbonpricing(i.e.,fossilfuelsubsidies)orwhenindirectcarbonpricesareconvertedto(orrenamedas)directpolicieswithoutmateriallychangingthestrengthoftheoverallincentive.Recognizingtheimportanceofthisbroaderviewofcarbonpricing,severalorganizationshavebeenworkingonanalysesthatquantifythecombinedimpactofdirectandindirectcarbonpricing.In2022,theOrganisationforEconomicCo-operationandDevelopment(OECD)publishedNetEffectiveCarbonRates(NECR)for71countries(predominantlyintheOECDandGroupof20).TheNECRisanindicatorthatincludesdirectcarbonpricingintheformofcarbontaxesandETSs,plusindirectcarbonpricingthroughfossilfueltaxesandfossilfuelsubsidies.viiThisbuildsontheOECD’spreviousworkonEffectiveCarbonRates,butimportantlyincludestheimpactoffossilfuelsubsidiesforthefirsttime.Inasimilarvein,theWorldBankisdevelopingaTotalCarbonPricemetricthatcoversabroaderrangeofcountries.30IndirectcarbonpricesaremuchmorewidespreadthancarbontaxesorETSs,butcarbontaxesandETSsaregrowingmorequickly,albeitfromasmallerbase.In2021,outofthe71countriestheOECDassessed,67hadpositiveindirectcarbonpricesintheformoffueltaxeswhileonly39hadcarbontaxesorETSs.Thisshowsnotonlythatmostenergyemissionsarepricedinsomeway,butalsothatmostcountrieshaveexperienceinimplementingpoliciesthatprovideacarbonpricesignal.However,thechangebetween2018and2021showsdirectcarbonpricesareexpandingatafasterrate.WhiletheshareofemissionscoveredbyanETSorcarbontaxincreasedbymorethan50%,theshareofemissionscoveredbyotherfueltaxesbarelychanged.Thiscontrastisparticularlynoticeableindevelopingcountries,dueprimarilytosubstantiallyincreasedemissionscoverageasaresultofthelaunchofChina’snationalETS.IndirectcarbonpricessetbyfueltaxesaregenerallymuchhigherthandirectonessetbycarbontaxesorETSs:theweightedaveragefossilfueltaxin2021wasthreetimestheleveloftheaveragecarbonpriceasaresultofcarbontaxesandETSs.31Thisgap,however,isnarrowing,withpricesinmostETSsandcarbontaxesintheNECRdatasetincreasingbyover50%between2018and2021.32Fossilfuelsubsidiesarestillwidespreadanderodetheincentiveprovidedbypositivecarbonprices.Effectively,theseconstituteanegativeindirectcarbonprice,whichcounteractsthepositivepricesignalfromdirectandindirectcarbonpricinginstruments.Fossilfuelsubsidiesarestillcommon:nearlyallthecountriesintheOECD’sanalysisemployedthem.Theirimpactissignificant:onaverageacrossthesample,fossilfuelsubsidiesreducedtheNECRbyaroundUSD0.90in2021,offsettingaroundafifthofthedirectcarbonprice(theaveragepriceprovidedbyETSsandcarbontaxesin2021inselectcountrieswasUSD4.50).Whilemanygovernmentsmadechangestoenergypoliciesin2022,withtheaimofsupportingvulnerableconsumersandsafeguardingtheireconomies,someofthesemeasureshavealsoreducedpolicysignalstoreduceemissions.WhethercountriessteppedbackonETSsorcarbontaxes,reducedorpausedfossilfueltaxes,orincreasedenergysubsidies,thesemeasureshadadampeningeffectontheoverallcarbonpriceincentiveinmanycountries.WhileonlyafewcountrieschangedETSsorcarbontaxesinresponsetothecrisis,manyreducedorpausedfossilfueltaxesorincreasedenergysubsidies.33Thisvastlyexpandedpublicexpenditureinsupportoffossilfueluse:theInternationalEnergyAgencyestimatesthat,globally,publicspendingtolowerenergybillsaddeduptoUSD500billionin2022,ofwhichEuropeaccountedfor70%.34Despitelowerpolicysignals,finalenergypriceshavestillgoneup.Governmentinterventionshavenotfullyoffsettheincreaseinfossilfuelcosts—householdsinmanycountriesstillfacemuchhigherenergybillsthantheydidinthepast.Thisoverallincreaseinenergyprices,andespeciallyfossilfuels,meanstheeconomicimperativeforenergyefficiency,energyconservation,andcarbon-freeelectricitygenerationhaslikelybecomestrongerovertheyear.However,thesepriceincreasesdonotprovidethesameinvestmentsignalsasdirectcarbonpricesbecausetheymaybeshort-livedand,likeindirectcarbonprices,donotreflecttherelativecarboncontentofdifferentfuels.Aswithdirectcarbonprices,overallcarbonpriceincentivesareinsufficienttodeliverthetransformationalchangeneededtodeliverontheParisgoals.Onlyabout19%ofemissionsinthecountriesincludedintheNECRdatasetarepricedatalevelneededby2030tobeconsistentwithnet-zeroemissionstargets.viiiTheInternationalMonetaryFund,OECD,andotherscontinuetohighlightthatfossilfuelpricesgenerallyfailtoappropriatelypriceenvironmentalimpacts.(vii)TheOECDcategorizespoliciesas“explicit”and“implicit,”whicharesimilar,respectively,tothe“direct”and“indirect”termsusedinthisreport.(viii)EUR60permetrictonofCO2isusedasamidpointestimateforcarboncostsin2020andalow-endestimatefor2030;OECD,“PricingGreenhouseGasEmissions:TurningClimateTargetsintoClimateAction,”2022.FOREWORDSUMMARYCHAPTER1CHAPTER2CHAPTER3CHAPTER4ANNEXES19STATEANDTRENDSOFCARBONPRICING2023WORLDBANK.ORGFIGURE2KEYDRIVERSORRECENTETSANDCARBONTAXPRICEDEVELOPMENTSFIGURE2KEYDRIVERSOFRECENTCARBONPRICEDEVELOPMENTSUpwardpressureonETSsandcarbontaxpricesLONGTERMStarting>5yearsagoDownwardpressureonETSsandcarbontaxpricesStructuralreforms,pricestabilizationmeasuresandalignmentofcapswithlong-termmitigationpathwayshaveaddedtoscarcityofallowancesinsomeETSs.EconomicgrowthincreasesdemandforETSallowances.Otherclimatepoliciesandtechnologydevelopmentsreduceemissions(e.g.throughenergyefficiency,renewabledeployment),reducingdemandforallowances.ReducedeconomicactivityduringCOVIDlowereddemandforETSallowances,someofwhichcanbecarriedforward.Inafewinstancesgovern-mentspostponedplannedETSorcarbontaxpricerisestocountertheeffectsofrisingenergyprices.Lowerenergydemandandincreasedfocusonenergyefficiencyduetohighenergyprices.Sustainedhighenergyandfossilfuelpricescouldreduceenergyuse,encour-agegreateruptakeofrenewables,reducingdemandforallowancesSupplychaindisruptionsandavailabilityofcriticalinputsslowedroll-outofrenewableenergiesandotherlow-carbontechnologies.Somegovernmentsadoptedincreasinglyambitiouspricetrajectoriesforcarbontaxes.MIDIUMTERMPast2-5yearsSHORTTERMPastyearLOOKINGAHEADHighgaspricesandotherenergysupplydisruptionssawsomecountriestemporarilyusemorecoal,pushingupdemandforcarbonallowances.Highinflationincreasedpricesforseveralcarbontaxesthatareannuallyadjusted.Increasedenergysubsidiesandlowerfossilfueltaxes,implementedtosupportcon-sumers,supportsenergyuseanddemandforETSallowanc-es.Continuedincreaseinambi-tiontomeetnetzerocoulddrivehigherpricesExpansionofcarbontaxesorETSstosectorswithhigherabatementcostscouldseehigherpricesneededtodeliverchange.Beyondpolicychanges,energymarketswerethebiggestofseveralfactorsinfluencingpricesinmostETSs(Figure2).Limitedgassupplyandextremelyhighgaspricesmadecoalrelativelymorecompetitive.CompoundingtheissuewasdroughtinEurope,China,andtheUnitedStatesin2022,causingtemporaryshortfallsinhydropoweroutputandcreatingproblemsforsomethermalpowerplants—ontopofexistingtechnicalandheat-relatedissuesamong,inparticular,Frenchnuclearpowerplants.InmanyEuropeancountries,thecombinedeffectwassufficienttotemporarilypausethemultiyeartrendofdecreasingcoalusage,andresultinghigherpowersectoremissionsdroveupEUETSprices.35OthereconomiesandtheirETSsweremoreshieldedfromenergypriceeffectsbytheirlong-termliquefiednaturalgas(LNG)supplycontracts.However,ifhighenergypricesaresustained,theywilleventuallyaffectallmarkets.Projectionsofglobalenergyconsumptiongrowthhavebeenreviseddownconsiderablyinlightofhigherfossilfuelpriceprojections.LowerenergyusewouldreducedemandforETSallowancesandhaveadampeningeffectonpriceswherepricesaredeterminedbyallowancesupplyanddemand.Overall,carbonpriceswouldneedtoriseinthelongertermtodriveinvestmentsintoclimateneutralityatthescaleandpacerequired.TheHigh-LevelCommissiononCarbonPricesconcludedin2017thatcarbonpricesneededtobeatthelevelofUSD40/metrictonsofcarbondioxide(tCO2)toUSD80/tCO2in2020andreachUSD50/tCO2to100/tCO2by2030tobeontracktokeeptemperaturesbelow2oC—theupperendofthelimitagreeduponintheParisAgreement(2017USD)(seeBox4).ixAdjustingforinflationallowsamoredirectcomparisonwithcurrentcarbonprices—priceswouldneedtoreachUSD61toUSD122by2030in2023USD.36AsofApril1,2023,lessthan5%ofglobalgreenhousegas(GHG)emissionsarecoveredbyadirectcarbonpriceat(ix)Lowandhighshadowpricesofcarbonvaluesaresuggestedtoaccountfortheuncertaintyassociatedwiththeestimates.FOREWORDSUMMARYCHAPTER1CHAPTER2CHAPTER3CHAPTER4ANNEXES20STATEANDTRENDSOFCARBONPRICING2023WORLDBANK.ORGIn2017,JosephStiglitzandNicholasSternledareportoftheHigh-LevelCommissiononCarbonPrices.ThisreportrecommendedthatdirectcarbonpricelevelsmustreachatleastUSD40toUSD80/metrictonofcarbondioxideequivalent(tCO2e)in2020andUSD50toUSD100/tCO2einrealterms(in2017USD)by2030(orUSD61–122by2030in2023terms)tolimitglobalwarmingtobelow2°C,providedasupportivepolicyenvironmentisinplace.MorerecentassessmentsalignwiththerecommendationsfromtheHigh-LevelCommissiononCarbonPrices.Forexample,theIntergovernmentalPanelonClimateChange’s(IPCC)WorkingGroupIIIcontributiontotheSixthAssessmentReportindicatesthatwithamitigationpathwaylimitingwarmingto2°CthemarginalabatementcostsofcarbonarearoundUSD90/tCO2by2030in2015termsorUSD115in2023terms.37Morerecently,theNetworkofCentralBanksandSupervisorsforGreeningtheFinancialSystem(NGFS)releaseditsupdatedscenariosforcentralbanksandsupervisorsinSeptember2022.NGFS’smodelingsuggeststhatcarbonpricesneedtobearoundUSD50by2030in2010terms(orUSD69in2023terms)andsubsequentlyaroundUSD200(orUSD276in2023terms)by2050toachieveabelow-2°Coutcome.38IPCCmodeling(whichincludesmodelsusedbyNGFS)concludesthatsignificantlyhighercarbonpriceswouldbeneededformeetingthe1.5°C-equivalentscenarios.orabovetherangerecommendedby2030(in2023USD),withmostofthesehigh-priceinstrumentslocatedinEurope(Figure3).Policyfeaturessuchasfreeallocationsorrebatescanalsolimittheextenttowhichacarbonpricecandrivethenecessaryvolumeofemissionreductions,dependingontheirdesign.Furthermore,inmanyjurisdictions,thegrowthin(nominal)carbonpricesfailedtomatchinflation,meaningthatcarbonpricesactuallydeclinedinrealterms(seeBox2).Anotherimportantconsiderationistheshareofemissionswithinajurisdictionthatfaceacarbonpriceincentive,whichvarieswidelyacrosscountries(seeSection2.2).Figure3indicativelyillustratesthis—theshadingindicatestheproportionofthejurisdiction’semissionscoveredbyeachcarbontaxorETS.Somejurisdictionshavemorethanoneofthesepolicies(suchasPoland,whichhasacarbontaxandparticipatesintheEUETS);inthesecases(indicatedwithasterisks)thetotalshareofthejurisdiction’semissionsthatarecoveredishigherthanthecoverageofanindividualpolicy.Further,theoverallstrengthofthepricesignalincludespoliciesbeyonddirectcarbonprices(seeBox3)andcanalsobereflectedthroughinternalcarbonpricing(seeBox5).2.2UptakeofETSsandcarbontaxesgrewslightly,mostlyincountriesthatarealreadypricingcarbonAsofApril2023,thereare73carbontaxesorETSsinoperation(Figure5).SinceApril2022newETSscommencedinAustriaandthestateofWashingtonintheUnitedStates,andIndonesiaannouncedthelaunchofamandatorynationalETS.Atthesubnationallevel,threenewcarbontaxeswereimplementedinstateswithinMexico—Querétaro,theStateofMexico,andYucatán—whileafourthcarbontaxinGua-najuatowillenterintoforceinJune2023.WiththeexceptionofIndonesia,allofthesenewinstrumentsareincountrieswherecarbontaxesorETSshadalreadybeeninplacebutcovernewsectorsorstrengthenexistingpricesignals.Inadditiontothesenewinstruments,Germany’snationalETSexpandedinJanuary2023tocovercoal-de-rivedfuelsusedinfacilitiescurrentlyoutsideoftheEUETS.TheNetherlandsintroducedcarbonpricefloorsforelectricityandindustry,whichensureaminimumcarbonpriceforemissionscoveredbytheEUETSandformpartofthecountry’scarbontax.“AsofApril1,2023,lessthan5%ofofglobalgreenhousegasemissionsarecoveredbyadirectcarbonpriceatorabovetherangerecommendedby2030”BOX4THELEVELOFDIRECTCARBONPRICINGNEEDEDTOBECONSISTENTWITHTHEPARISTEMPERATURETARGETFOREWORDSUMMARYCHAPTER1CHAPTER2CHAPTER3CHAPTER4ANNEXES21STATEANDTRENDSOFCARBONPRICING2023WORLDBANK.ORGFIGURE3PRICESANDCOVERAGEACROSSETSsANDCARBONTAXESNote:NominalpricesonApril1,2023,ormostrecentexchange-tradedorauctionpricesbeforeApril1,2023,areshownforillustrativepurposesonly.Onlythemainrateisshownforeachinstrument.Someinstrumentsarenotshowninthisgraphascurrentpriceinformationisnotavailable.Pricesarenotnecessarilycomparablebetweeninstrumentsbecauseof(forexample)differencesinthesectorscoveredandallocationmethodsapplied,specificexemptions,andcompensationmethods.The2030carbonpricecorridorisbasedontherecommendationsinthereportoftheHigh-LevelCommissiononCarbonPricesadjustedforinflation.Severaljurisdictionsapplydifferentcarbontaxratestodifferentsectorsorfuels.Inthesecases,theincludedpricereflectsthehighestgeneraltaxrateorprimaryfuelcoveredbythecarbontax.Theinstrumentsincludedonthex-axisreflectpricesprovidedbyeachinstrument.Instrumentsindicatedwithareinjurisdictionswithmultipleinstruments,socoverageofthosejurisdictions’totalemissionsmaybehigherthanindicatedbyanindividualinstrument.TheEUETSincludes27EUmemberstatesplusNorway,Iceland,andLiechtenstein.SeveralfederalandsubnationalpoliciesinCanadaarepricedatthesamerate,reflectingthePan-CanadianApproachthatrequiresallCanadianprovincesandterritoriestohaveacarbonpricingsysteminplacethatalignswiththeminimumnationalstringencyfederalstandards.Thesearepresentedintwoinstruments(acarbontaxandanETS):thecarbontaxentry(Canadaprovincesandfederal)includesthefederalfuelcharge,BritishColumbiacarbontax,andNewfoundlandandLabradorcarbontax,whileCanadafederalandprovinces(ETSentry)includesthefederalOutput-BasedPricingSystem(OBPS),AlbertaTechnologyInnovationEmissionsReductionregulation,NewBrunswickETS,NewfoundlandandLabradorPerformanceStandardSystems,andSaskatchewanOBPS.ThecoverageunderCanadareflectsthecombinedcoverageofCanada’stotalemissionsbytheincludedpolicies.CoverageestimatesforsubnationalMexicocarbontaxeswerenotavailable-approximateestimatesareincludedbasedonthefuelscoveredbyeachinstrument.FIGURE3PRICESANDCOVERAGEACROSSETSSANDCARBONTAXES0204060801001201401602030CarbonPriceCorridor2023USD61—122pert/CO2eUruguayCTLiechtensteinCTSwitzerlandCTSwedenCTEUETSSwitzerlandETSNorwayCTUnitedKingdomETSFinlandCTNetherlandsCTIrelandCTFranceCTLuxembourgETSCanada(ProvincesandFederal)CTCanada(ProvincesandFederal)ETSIcelandCTPrinceEdwardIslandETSAustriaETSNewZealandETSGermanyETSQuerétaroCTCaliforniaCaTQuébecETSDenmarkCTPortugalCTUnitedKingdomCTNovaScotiaETSBritishColumbiaETSLatviaCTSpainCTYucatanETSRGGIETSZacatecasCTBeijingETSGuangdongETSMassachusettsETSKoreaETSDurangoCTSouthAfricaCTShenzhenETSShanghaiETSChinaETSHubeiETSColombiaCTChileCTChongqingETSFujianETSTianjinETSMexicoCTTokyoCTSingaporeCTSaitamaETSArgentinaCTStateofMexicoCTEstoniaCTJapanCTKazakhstanETSUkraineCTPolandCTCarbonTax>60%coverageofjurisdiction’semissions<40%—60%coverageofjurisdiction’semissions20%—40%coverageofjurisdiction’semissions<20%coverageofjurisdiction’semissionsETSCarbonPrice(USD/tCO2e)FIGURE3PRICESANDCOVERAGEACROSSETSSANDCARBONTAXES0204060801001201401602030CarbonPriceCorridor2023USD61—122pert/CO2eYucatanETSRGGIETSZacatecasCTBeijingETSGuangdongETSMassachusettsETSKoreaETSDurangoCTSouthAfricaCTShenzhenETSShanghaiETSChinaETSHubeiETSColombiaCTChileCTChongqingETSFujianETSTianjinETSMexicoCTTokyoCTSingaporeCTSaitamaETSArgentinaCTStateofMexicoCTEstoniaCTJapanCTKazakhstanETSUkraineCTPolandCTCarbonTax>60%coverageofjurisdiction’semissions<40%—60%coverageofjurisdiction’semissions20%—40%coverageofjurisdiction’semissions<20%coverageofjurisdiction’semissionsETSCarbonPrice(USD/tCO2e)FOREWORDSUMMARYCHAPTER1CHAPTER2CHAPTER3CHAPTER4ANNEXES22STATEANDTRENDSOFCARBONPRICING2023WORLDBANK.ORGBOX5INTERNALCARBONPRICINGSomeorganizationsvoluntarilyusedifferentkindsofinternalcarbonprices(ICPs)tomanageclimate-relatedbusinessrisksandprepareforthetransitiontoclimateneutrality.Shadowpricingassignsatheoreticalpriceperunitofemissions,whichisthenfactoredintotheorganization’sdecision-makingprocesses.Throughinternalcarbonfees,organizationsallocate‘fee’revenuestofundemissionsreductionactivities.OthertypesofICPsincludeimplicitcarbonpricing,xoffsetpurchasingandinternalcarbontrading.OrganizationscanuseICPstomanagescope1(direct),scope2(electricityuse),orscope3(othersupplychain)emissions.Ofall8,402companiesreportingunderCDP(formallytheCarbonDisclosureProject)in2022,15%(1,203companies)reportedhavingimplementedanICPandafurther18%plantodosointhenexttwoyears.Shadowcarbonisthemostcommon,accountingfor68%ofreportedICPs.ThemainmotivationsforimplementingICPsremainedconsistentwithpreviousyears:todrivelow-carboninvestmentandenergyefficiencymeasures.Othermotivationsweretochangeinternalbehavior,toidentifyandseizelow-carbonopportunities,andtonavigateGHGregulations.OfallthecompaniesthatreporttheuseofanICP,aroundhalf(52%)arealreadysubjecttoacarbontaxorETS,andafurther15%expectthatwillbethecaseinthenextthreeyears.EuropeandtheAsia-PacificregioncontinuetoaccountforthehighestshareofcompaniesreportingtheuseofanICP.Theserviceindustry,inparticularthefinancialindustry,remainstheonewiththehighestnumberofcompaniesreportinganICP,accountingforoveraquarterofthetotal.In2022themanufacturingindustryovertookmaterialsxiastheindustrywiththesecondhighestnumberofcompaniesreportinganICP.ThereismassivevariationinthelevelofICPscompaniesapply.WhileitisdifficulttocompareICPsreportedbycompaniesandhowICPsareused,duetolimitationsarounddataavailabilityandtransparency,therangeofreportedpricesprovideinsightsonthebreadthofICPsacrosscompaniesandindustries.ReportedICPsrangefromUSD0.01/tCO2toUSD3,556/tCO2,butnearlyallarebelowUSD130/tCO2(seeFigure4).Whileonly146companies(13%)reportedaninternalcarbonpriceaboveUSD100/tCO2,thishasincreasedsignificantlysince2021.MostICPsarebelowthelevelsrecommendedbytheHigh-LevelCommissiononCarbonPricestobealignedwiththeParisAgreement(seeBox4).Multilateraldevelopmentbanksalsouseshadowcarbonpricing.Forexample,aspartofitsClimateChangeActionPlan2021–2025,theWorldBankGroupbegananinstitution-wideefforttofurthermainstreamclimateconsiderationsintoalldevelopmentprojects.ThisincludesapplyingashadowpriceofcarbonintheeconomicanalysisofInvestmentProjectFinancingprojectsxiiwhereBankmethodologiesexisttobetterunderstandthecostsandbenefitsofinvestmentsandalternatives.Whiletheshadowpricesappliedacrossandwithininstitutionsisnotuniform,theygenerallyalignwithrecommendationsfromtheHigh-LevelCommissiononCarbonPrices(seeBox4).Forexample,WorldBankguidancerecommendsashadowcarbonpriceinlinewiththeHigh-LevelCommissiononCarbonPrices’carbonpricingcorridor39andtheAsiaDevelopmentBankusesaglobalsocialcostofcarbon,whichtranslatestosimilarlevels.40(x)Notesomeorganizationsusetheterm“implicitcarbonpricing”differently,forexampletorefertofuelexcisetaxesandfossilfuelsubsidies.(xi)Thematerialssectorcoversactivitiesrelatedtobothmanufacturingandrawmaterials(SectordefinitionscanbefoundontheCDPwebsite.)(xii)Thisincludesmedium-tolong-termprojectsinsectorsacrossinfrastructureandsustainabledevelopmentworkprograms.FIGURE4INTERNALCARBONPRICESAPPLIEDACROSSINDUSTRIES0501001502002500-1010-2020-3030-4040-5050-6060-7070-8080-9090-100100-110110-120120-130>130NumberofOrganizationsInternalCarbonPricingRange(USD/tCO2e)ServicesManufacturingMaterialsOthersIndustryFOREWORDSUMMARYCHAPTER1CHAPTER2CHAPTER3CHAPTER4ANNEXES23STATEANDTRENDSOFCARBONPRICING2023WORLDBANK.ORGETSandCarbonTaxImplementedorScheduledETSImplementedorScheduledforImplementationETSorCarbonTaxUnderConsiderationCarbonTaxImplementedorScheduledforImplementationIndonesiaSingaporeBruneiDarussalamNewZealandKazakhstanPakistanThailandTürkiyeChinaColombiaChileIsraelArgentinaUruguayCaliforniaOregonWashingtonPennsylvaniaNorthCarolinaMassachusettsManitobaSaskatchewanQuébecOntarioAlbertaPrinceEdwardIslandNorthwestTerritoriesNewfoundlandandLabradorNewBrunswickBritishColumbiaRGGINewYorkBrazilHawaiiAustraliaNunavutNorwayUKSwedenSpainPortugalPolandNetherlands(Kingdomofthe)LithuaniaLatviaItalyIrelandGreeceGermanyFranceFinlandEstoniaDenmarkBelgiumLuxembourgLiechtensteinCataloniaSloveniaAustriaSwitzerlandHungaryMontenegroAlbaniaTaiwan,ChinaTokyoTianjinShenzhenShanghaiSaitamaHubeiGuangdong(exceptShenzhen)FujianChongqingBeijingJapanRepublicofKoreaSakhalinTokyoSaitamaCzechRepublicRomaniaUkraineBulgariaCroatiaSlovakRep.MoldovaBosnia&HerzegovinaSerbiaNorthMacedoniaGeorgiaVietnamMalaysiaSouthAfricaBotswanaSenegalCôted’IvoireMoroccoIcelandGabonNigeriaMexicoJaliscoZacatecasStateofMexicoYucatánGuanajuatoDurangoQuerétaroNovaScotiaFIGURE5MAPOFCARBONTAXESANDETSsxiii(xiii)Instrumentsareconsidered“scheduledforimplementation”oncetheyhavebeenformallyadoptedthroughlegislationandhaveanofficial,plannedstartdate.Instrumentsareconsidered“underconsideration”ifthegovernmenthasannounceditsintentiontoworktowardtheimplementationofacarbonpricinginitiativeandthishasbeenformallyconfirmedbyofficialgovernmentsources.Somecountriesthathavemechanismsimplementedalsohaveadditionalinstrumentsunderconsideration.Forsubnationaljurisdictionsonlythesubnationalinstrumentisreflected.FOREWORDSUMMARYCHAPTER1CHAPTER2CHAPTER3CHAPTER4ANNEXES24STATEANDTRENDSOFCARBONPRICING2023WORLDBANK.ORGTherewerealsodelaysandrepeals,largelydrivenbytheenergycrisis.Sloveniarepealeditscarbontax,whichhadbeeninplacesince1996,citingenergyprices.Indonesiadelayedtheintroductionofitsplannedcarbontax,whichwasduetostartin2022,referencingglobalrisksstemmingfromRussia’sinvasionofUkraine,althoughithassincelauncheditsETS.41AustriadelayeditsnationalETSbythreemonths,butitcommencedinOctober2022.GermanypushedbacktheplannedexpansionofitsnationalETStocoverwasteincinerationuntil2024.WhiletheUSstateofPennsylvaniapassedlegislationtojointheRegionalGreenhouseGasInitiative(RGGI),itsimplementationisonholdduetoacourtchallenge.ThenetresultofdevelopmentsoverthepastyearisaminorincreaseintheshareofglobalGHGemissionsthatarecoveredbycarbontaxesorETSs.ETSsandcarbontaxesinoperationcoveraround23%ofglobalGHGemissions(Figure6),anincreaseoflessthan1%comparedwith12monthsago.xivThisfigureaccountsforoverlapbetweeninstrumentsandthefactthatcoveragedifferssubstantiallyfromcountrytocountry—forexampleUruguay,withacarbontaxthatonlycoversgasoline,comparedwithmorecomprehensiveapproaches,suchasSingaporewithacarbontaxappliedtoaround80%ofnationalGHGemissions.Therelativelysmallincreaseinglobalcoverage—despitetheexpandingscopeofsomepoliciesandnewinstrumentsbeingimplemented–isalsoaresultofthefactthatGHGemissionsaredecreasinginmostjurisdictionsthathaveimplementedacarbontaxorETS.Newlyimplementedinstrumentssharedesignelementsfromexistingsystems.SimilartoChina’snationalETS,Indonesia’sETSwillfunctionlikeatradableperformancestandardforaround100grid-connected,coal-firedpowerstations,withemissionsintensitybaselinesbasedonthecategoryofpowerplant,theaverageemissionsintensity,andtheaverageGHGemissionsofthepowerstation.LikethenationalETSinneighboringGermany,theAustriannationalETScoversfuelcombustioninroadtransport,buildings,andagriculture(i.e.,emissionsourcesnotcoveredbytheEUETS)andhasstartedwithapricethatwillbesetbythegovernmenteachyearuntil2025.(xiv)ChangestotheproportionofglobalGHGemissionscoveredsincelastyear’sreportreflectfactorsbeyondincreasedcoverageofdirectcarbonpricinginstruments.ThisincludeschangesasaresultofapplyingupdatedGHGemissionestimates.ThecurrentreportusesupdatedGHGestimatestakenfromversion7.0oftheEmissionsDatabaseforGlobalAtmosphericResearch(EDGAR)(https://edgar.jrc.ec.europa.eu/),whichwerereleasedattheendof2022.EDGAR7.0includesarangeofupdatesandprovidesGHGemissionvaluesupto2021(previousversionsonlyincludedupto2018).“ETSsandcarbontaxesinoperationcoveraround23%ofglobalGHGemissions”FIGURE6SHAREOFGLOBALGHGEMISSIONSCOVEREDBYETSSANDCARBONTAXESETSCoverageOverlapbetweenETSandCTCarbonTaxCoverage0.4%18%5.5%0%5%10%15%20%25%20002001200220032004200520062007200820092010201120122013201420152016201720182019202020212022ShareofGolbalEmissions202373MechanismsimplementedsinceApril2022(StateandTrendsReport2022)AustriaETSDurangoCT(Mex)IndonesiaETSMontenegroETSQuerétaroCT(Mex)StateofMexico(Mex)WashingtonCCAYucatánCT(Mex)NumberofcarbontaxesorETSsinoperationApril1,2023FOREWORDSUMMARYCHAPTER1CHAPTER2CHAPTER3CHAPTER4ANNEXES25STATEANDTRENDSOFCARBONPRICING2023WORLDBANK.ORG“NewZealandissettobecomethefirstcountryintheworldtopriceagriculturalemissionsfrom2025”IntheUnitedStates,WashingtonStatelaunchedits“cap-and-invest”systeminJanuary2023,modeledafterthecap-and-tradesystemsalreadyinoperationinCaliforniaandQuébec.Severaljurisdictionsannouncedplanstoexpandthecoverageofexistinginstrumentsortoadoptnewones.TheMexicanETScompleteditspilotphasein2022andisintendingtoenteritsoperationalphasein2023;theMexicanMinistryofEnvironmentandNaturalResources(SEMARNAT)ispreparingtopublishthefinalrulesfortheoperationalphase.xvAustralia’sparliamenthaspassedlegislationtointroducecreditingintoitsexistingsafeguardmechanismstartingfromJuly1,2023,effectivelytransitioningintoarate-basedETS.Thereformwouldalsotightenbaselines,toalignwithAustralia’s2030targets.TheEUagreedtoestablishanew,separateETSby2027tocoveremissionsfrombuildingsandroadtransport,aswellassmallenergyandindustryinstallationsoutsidethescopeoftheexistingEUETS.ThechangeswouldalsoexpandtheexistingEUETStoincludemaritimeshippingfrom2024.ShippingcompanieswillgraduallyfacesurrenderobligationsundertheEUETS,startingfrom40%ofverifiedemissionsin2024andincreasingto70%in2025and100%in2026.Atthatpointtheplanwillcover100%ofemissionsforvoyagesbetweenmemberstateportsand50%forthosebetweenEUportsandthird-countryports.TheEUalsoreachedagreementonthedetailsofitsCarbonBorderAdjustmentMechanism(CBAM).Itwillapplytoemissionsembeddedinironandsteel,cement,aluminum,electricity,fertilizers,andhydrogenimportedintotheEU.ThemechanismwillfunctionasacarbonpriceleviedonimportstotheEUthathaveembodiedemissionspricedbelowtheEUcarbonprice,withobligationsforimporterstosubmit“CBAMcertificates”pricedinlinewithEUETSallowancesfrom2026.FurtherdetailsoncarbontaxandETSupdatesareoutlinedinAnnexC.NewZealandissettobecomethefirstcountryintheworldtopriceagriculturalemissionsfrom2025,whichwouldextendcarbonpricingbeyondtraditionallycoveredsectors.42Untilnow,carbontaxesandETSshavelargelyfocusedonenergyandindustrialemissions:mostcarbontaxesapplytospecificfossilfuelsusedforenergyindifferentsectors,whileETSsmostlyfocusonstationaryenergyandlargeindustrialfacilities(seeAnnexC).TheNewZealandgovernmentannouncedinDecember2022thatthecarbonprice,aseparatemechanismfromtheNewZealandETS,willbechargedatthefarmlevel.Thedesignofthemechanismunderwentafinalroundofconsultationsinlate2022,withagovernmentdecisionexpectedinthefirsthalfof2023.AsimilarapproachhasalsobeenfloatedinDenmark,wheretheDanishClimateCouncilrecommendedintroducingataxonfarmingemissionstohelpmeetthecountry’semissionstargets.43Expandingcarbonpricingtoagriculturalemissionscomeswithitsownsetofchallenges,withstakeholdersraisingconcernsaboutimpactsonfoodsecurity,limitedopportunitiestoreduceemissionsfromagriculturalactivities(andassociatedrisksofcarbonleakage),interactionswithpreexistingmarketdistortions,anddifficultiesensuringrobustmonitoring,reporting,andverification.44Othersarguecustomersareseekingmoresustainablealternatives,newapproachestoreducingagriculturalemissionsareemerging,andcarbonpricingcouldensuregreaterinvestmentinfurtherdevelopingnewwaystoreduceagriculturalemissions.45IftheNewZealandapproachissuccessful,itwillprovideausefulexampleofanapproachtoapplycarbontaxesorETSstoagriculturalemissionsandpotentiallytoothersectorslesscommonlycoveredbythesepolicies.BeyondthosecountriesimplementingandrefiningcarbontaxesandETSs,severaljurisdictionscontinuetotakepreparatorystepsforimplementingthesepolicies.InEastAsiaandthePacific,severalcountriescontinueto(xv)The“pilotphase”ranfromJanuary1,2020,toDecember31,2021.Thepilotphasewasdesignedtohavenoeconomiceffects,meaningthattherewerenomonetarypenaltiesandallowanceswereallocatedforfree,inaproportionequivalenttothereportedemissionsofcoveredentities.Duringthe“transitionphase,”whichbeganin2022,therulesforthepilotphaseremainapplicableuntilSEMARNATpublishestherulesforthe“operationalphase,”whichisexpectedlaterin2023.FOREWORDSUMMARYCHAPTER1CHAPTER2CHAPTER3CHAPTER4ANNEXES26STATEANDTRENDSOFCARBONPRICING2023WORLDBANK.ORGexplorecarbonpricingpolicies.Malaysia,Vietnam,andThailand,forinstance,areallconsideringoptionsforfutureETSs.Japan’sMinistryofEconomy,TradeandIndustrypresentedplansthatcouldseeanationalETSstartingin2026.46InAugust2022,ChileannounceditsintentiontodevelopapilotETSfortheenergysectoraspartofits2022–2026EnergyAgenda.InTürkiye,theMediumTermProgramme(2023–2025)mentionstheconversionofenergytaxestoacarbontaxandtheintroductionofanationalETS.InJanuary2023,Taiwan,China,passedalawtointroduceacarbontaxonlargeemitters,aswellasaCBAMforcarbon-intensiveimports.Thedesignsofbothsystemshaveyettobedetermined.2.3GovernmentrevenuesfromETSsandcarbontaxescontinuetogrowandreachedanewrecordhighin2022Continuingwithprevioustrends,revenuesxvifromcarbontaxesandETSsgrewbyover10%in2022,reachingalmostUSD95billionglobally.Carbonrevenuesareafunctionofthecarbonprice,theemissionscovered,andotherdesignfeaturessuchasthemethodofallowanceallocationortheavailabilityofrebates.Comparedtothepreviousyear,globalrevenuefromcarbontaxesandETSsincreasedbyaroundUSD10billion.Inabsoluteterms,theEUETSgeneratedthemostrevenuein2022,namelyUSD42billion,andtheincreaseinrevenuesofaboutUSD7.8billionwasresponsibleformorethan76%ofthetotalincreaseinglobalcarbonpricingrevenues.Onapercapitabasis,Sweden’scarbontaxforroadtransportwastheinstrumentthatdeliveredthehighestrevenues,amountingtoslightlymorethanUSD200percitizen.In2022,ETSsaccountedfor69%ofglobalgovernmentrevenuesfromdirectcarbonpricing,withtheremaining31%fromcarbontaxes(Figure7).Therearetrade-offsmadebetweendifferentobjectives,withtheamountofrevenueraiseddependentondesignfeatures.TherearemanydifferentdesigndecisionsthatimpacttheamountofrevenueraisedbyacarbontaxorETS,includingwhichemissionssourcesarecoveredandhowthepriceisset,aswellasthelevelofbaselinesorfreeallocations,theuseofauctions,theuseofrebateschemes,andtheuseofoffsets.MostofthepoliciesthatdeliveredthehighestgovernmentrevenueswereETSs,butthislargelyreflectedhigherpricesandthesizeoftheeconomiestheycovered.(xvi)IncludesrevenuesfromcarbontaxesandETSs(e.g.,fromauctioning)collectedbygovernments.Itdoesnotaccountforforegonerevenue,forexamplefromfreelyallocatedunitsortaxexemptions.“RevenuesfromcarbontaxesandETSsgrewbyover10%in2022,reachingalmostUSD95billionglobally”FIGURE7EVOLUTIONOFGLOBALREVENUESFROMCARBONTAXESANDETSsOVERTIME(NOMINAL)BillionUSDETSCarbonTax1020304050607080901002006200720082009201020112012201320142015201620172018201920202021202231%69%USD95FOREWORDSUMMARYCHAPTER1CHAPTER2CHAPTER3CHAPTER4ANNEXES27STATEANDTRENDSOFCARBONPRICING2023WORLDBANK.ORG“RevenueintheEUETShasincreasedsevenfoldsince2017.Thisisduepartlytohigherprices,butalsotothegradualshiftfromfreeallocationtowardauctioning.”ThedominanceoftheEUETSintermsofrevenuescollectedreflectsinpartitssizeandprice,butalsoitsevolvingapproachtoallowanceallocation.RevenueintheEUETShasincreasedsevenfoldsince2017.Thisisduepartlytohigherprices,butalsotothegradualshiftfromfreeallocationtowardauctioning.Still,around35%ofEUETSallowancesareallocatedforfree.47Thisconstitutesasizableopportunitycost—auctioningtheseallowancescouldyieldrevenuesintheorderofanadditionalUSD20billionperyear.xviiChina’snationalETScoversmorethandoubletheemissionsoftheEUETS,butineffectitadopts100%freeallocationthroughtechnology-specific,emissions-intensitybaselines.Thisapproachmeanslowdirectcostsformostcoveredentities,butalsothatthepolicyhasnotraisedanyrevenue.ComparingETSswithcarbontaxes,whichoftenhavefewerexemptionsorfreeallocations,givesadifferentperspective.Forexample,theRepublicofKorea’sETScoversmoreemissionsthanMexico’scarbontaxandatahigherprice,butfreeallocationsandtheavailabilityofoffsetsintheKoreanETSmeansgovernmentrevenuewassimilarforbothmechanismsataroundUSD240million.CollectedrevenuefromcarbontaxesandETSsisfrequentlyusedforspecificpredeterminedpurposes,helpingtoeasepoliticalresistance.BasedondatacollectedbytheInstituteforClimateEconomics,40%ofrevenuesfromcarbontaxesandETSswereearmarkedxviiifordedicatedpurposes,inparticulargreenspending,andafurther10%fordirecttransferstovulnerablehouseholdsandfirms.Theremainderwasusedforthegeneralbudget(20%),taxcuts(9%),andotherpurposes(6%)(Figure8).Thisisanincreaseintheproportionofcarbonrevenuebeingusedforspecificpurposescomparedtopreviousyears.ThisincreasewasdrivenbytheincreaseinrevenuecollectedundertheEUETS,wherethemajorityofauctionrevenueallocatedtoMemberStatesisusedforclimate-andenergy-relatedpurposes(andiswellabovethe50%requiredbyEUlegislation).48Bycontrast,themajorityofrevenuesfromindirectcarbonprices(suchasfuelexcisetaxes)arenotearmarkedforspecificpurposes.49NewresearchfromtheOECDindicatesthereisgreaterpublicsupportforclimatepolicy,includingETSsandcarbontaxes,ifrevenuesareusedtofundgreeninfrastructureandlow-carbontechnologiesorredistributedtolow-incomehouseholdsorthosemostaffectedbythepolicy.50,xixEarmarkingrevenueshasbeenusedtosupportthelong-termtransformationofenergy-intensiveindustries.Forinstance,inBritishColumbia(BC)carbontaxrevenuesareusedtomanageimpactsonhouseholds,maintainindustrycompetitiveness,andencouragenewgreeninvestments.The“CleanBCProgram”directsanamountequaltotheincrementalcarbontaxpaidbyindustryaboveCAD30/tCO2e(USD22)intoincentivesforcleaneroperationsandemissionreductionprojects.TheEUwilluseclosetoEUR40billion(USD43billion)fromETSrevenuesfortheInnovationFundtofinancethedevelopmentofnewtechnologiesandbigflagshipprojects.AlbertausesmostoftherevenuesfromitsETStohelpsupportregulatedfirmstransitionawayfromfossilfuels.FromthefirstinstallmentofCAD750million(USD558million),CAD131million(USD97million)wasusedtofundsevenprojectsundertheIndustrialEnergyEfficiencyandCarbonCaptureUtilizationandStorageGrantProgram.51Insomejurisdictions,though,earmarkingofpublicrevenuesisnotallowed,reflectingconcernsthatearmarkingreducespolicymakers’flexibilityandmightcreatealock-inofeconomicallyinefficientspending.52Recyclingrevenuesthroughdirecttransfershavebeenimplementedthroughlump-sumpaymentsandtargetedvulnerablehouseholdsorthosemostimpacted.Policymakersareoftenconcernedthatcarbonpricingaddstofinancialpressureonlow-incomehouseholds.53Althoughcarbonpricingcanhaveaprogressiveeffectonincomedistribution,54higherenergycostsareanadditionalburdenforlow-incomehouseholds.55Returningcarbonpric-ingrevenuetoaffectedhouseholdscanreduceoreliminatethispressure.The(xvii)Thisfigurerepresentsanindicativevalueofrevenuebasedontheproportionofallowancesallocatedforfreein2022andthepricein2022.Itdoesnotaccountforbroadermarketimpactsthatwouldresultfromincreasingtheproportionofallowancesauctioned.(xviii)Note,earmarkingincludeswhererequirementsaresetoutinlegaltextorwherethereiscleardocumentationexplaininghowrevenuehasbeenallocated.(xix)Formoreinformationonhowrevenueusecanaffectpoliticalacceptability,seeD.Klenert,L.Mattauch,E.Combet,O.Edenhofer,C.Hepburn,R.Rafaty,andN.Stern,“MakingCarbonPricingWorkforCitizens,”NatureClimateChange8(2018):669–677,https://doi.org/10.1038/s41558-018-0201-2.FOREWORDSUMMARYCHAPTER1CHAPTER2CHAPTER3CHAPTER4ANNEXES28STATEANDTRENDSOFCARBONPRICING2023WORLDBANK.ORGFIGURE8SCALEANDUSESOFCARBONREVENUEIN2021SHAREOFREVENUEBYCOUNTRYSHAREOFREVENUEBYTYPEOFMECHANISMSHAREOFREVENUEALLOCATEDTODIFFERENTUSESETS:70%46%:Earmarking29%:GeneralBudgetCarbonTax:30%6%:Other9%:TaxCuts10%:DirectTransfersEUETS:43.4%UnitedKingdom:9.5%Germany:8.7%France:9.3%UnitedStates:5.5%Canada:8.5%Sweden:2.6%Japan:2.4%NewZealand:1.4%Norway:1.8%Other:6.9%Source:Basedon2021datafromInstituteforClimateEconomics.Note:AllauctionrevenueallocatedtoEUMemberStatesisreflectedundertheEUETSrevenue(notindividualmemberstates).Revenuescollectedunderseparateinstruments(e.g.,FranceCarbonTaxorGermanyETS)aredisplayedseparately.Shareofrevenueallocatedtodifferentusesin2021,meaningthatrevenueusedisplayedcouldincluderevenuecollectedpriorto2021.Canadianfederalpollutionpricingsystemaddressesthisbyreturn-ingrevenuetocitizensthrough“ClimateActionIncentivepayments”aimedatprimarilybenefitinglow-andmiddle-incomehouseholdsandfamilies.TheEU’sFitfor55climatepolicypackageincludesa“SocialClimateFund”thatwillreturnEUR65billion(USD71billion)generatedfromcarbonpricingrevenuetovulnerablehouseholds,microenterpris-es,andtransportusers,specificallythroughtemporarydirectincomesupportaswellassupportinginvestmentsinenergyefficiencyofbuildings,decarbonizationofheatingandcoolingofbuildings,andim-provingaccesstolow-carbonmobility.56ThelargestshareoftheCO2levyisrecycledbackintheformoflump-sumequalpercapitatrans-ferstohouseholdsbymeansofreducingmandatoryhealthinsurancecontributions.AustriahassetuparebatesystemforitsnationalETS:theso-called“climatebonus”thatrecyclescarbonpricingrevenuetohouseholds.ThefirstpaymentsweremadeinAugust2022incombi-nationwithfinancialsupporttoaddresshighercostsofliving.Intotal,everyadultreceivedEUR500(USD544)andeverychildEUR250(USD272).57ForthenextpaymentsinOctober2023,thebonuswillbebetweenEUR100andEUR200(USD109–217),dependingontheplaceofresidence,withhigherpaymentsforpeoplelivinginareaswithloweraccesstopublictransportation.2.4High-incomenationshavehigheruptake,prices,andrevenues,butothercountriesareincreasinglyshowinginterestThevastmajorityofcarbontaxesandETSsarelocatedinhigh-incomecountriesinEuropeandNorthAmerica.EverycountryintheEuropeanEconomicAreaxxandNorthAmericahasatleastsomeofitsemissionscoveredbyoneofthesemechanisms(notingthatintheUnitedStatesthesepoliciesareimplementedalmostentirelyatthesubnationallevel).China’snationalETSaccountsforalmostalloftheemissionscoveredinEastAsiaandthePacific.WhilesomecountriesFOREWORDSUMMARYCHAPTER1CHAPTER2CHAPTER3CHAPTER4ANNEXES29STATEANDTRENDSOFCARBONPRICING2023WORLDBANK.ORGinLatinAmericaandtheCaribbeanandSouthAsiahavecarbontaxes,MexicoistheonlyonetohaveimplementedanETS.InAfricaandtheMiddleEast,therearehardlyanyexamplesofeitherinstrument.ETSsorcarbontaxesaremostlylimitedtomiddle-incomeandhigh-incomecountries(Figure9).CarbontaxratesandETSpricesinhigh-incomecountriestendtobehigherthanthoseinmiddle-incomecountries(Figure10).Mostinstrumentsinhigh-incomecountrieshavepricesaboveUSD50,andnearlyallaboveUSD15.Inmiddle-incomecountriesmostinstrumentshavepricesbelowUSD10.Thereare,though,severalexamplesofinstrumentsinmiddle-incomecountrieswithpricesaboveUSD10,suchasintheBeijingandGuangdongETSPilots(inChina),thecarbontaxofLatvia,andthesubnationalcarbontaxesinMexico(Querétaro,Yucatán,andZacatecas).High-incomecountriesareresponsibleforcollectingalmostalloftherevenuesfromcarbontaxesandETSs,reflectinghigherprices,higherjurisdictionalemissions,andgreateruptakebutalsodifferentdesigns.Ofthe16nationalpoliciesthatdeliveredlessthanUSD30millionin2022,onlyafewwereinhigh-incomecountries—andthesewerecarbontaxesthatsupplementanETS.Thereareeightrate-basedETSsinmiddle-incomecountriesthatdeliveredlittleornorevenue.Thesedesignsarenotuniquetomiddle-incomecountries;Canada’sOutput-BasedPricingSystem,alongwithseveralsubnationalCanadiansystems,andAustralia’sscheduledETSoperateonasimilarbasis.Cap-and-tradeETSsaremuchmorelikelytobeinhigh-incomecountriesanddeliverhigherrevenues,butthisdependsontheleveloffreeallocationandeligibilityofoffsets(asnotedinSection2.3).Theonlycap-andtradeETSnotinahigh-incomecountryaretheKazakhstanandMexicanETSs,whichhavenotauctionedallowancestodate.Middle-incomecountriesweremorelikelytogeneraterevenuesthroughcarbontaxes;forexample,Argentina’scarbontaxbroughtinUSD167millionin2022andColombia’sUSD92million.Theimpactofexemptions,differentialrates,andFIGURE9COUNTRIESWITHCARBONTAXESANDETSsBYWORLDREGIONSANDINCOMELEVELS–IMPLEMENTED,SCHEDULED,ORUNDERCONSIDERATIONCountrywithaCarbonTaxandanETSimplementedorscheduledCountrywithaCarbonTaximplementedorscheduledCountrywithoutacarbontaxoranETSCountrywithanETSimplementedorscheduledCountrywithaCarbontaxorETSunderconsiderationNORTHAMERICALATINAMERICA&CARIBBEANSUB-SAHARANAFRICAMIDDLEEAST&NORTHAFRICASOUTHASIA,EASTASIA&THEPACIFICEUROPE&CENTRALASIAHigh-incomeCountriesUpper-Middle-IncomeCountriesLower-Middle-IncomeCountries(xx)TheEuropeanEconomicAreaincludesAustria,Belgium,Bulgaria,Croatia,RepublicofCyprus,CzechRepublic,Denmark,Estonia,Finland,France,Germany,Greece,Hungary,Iceland,Ireland,Italy,Latvia,Liechtenstein,Lithuania,Luxembourg,Malta,Netherlands,Norway,Poland,Portugal,Romania,Slovakia,Slovenia,Spain,andSweden.FOREWORDSUMMARYCHAPTER1CHAPTER2CHAPTER3CHAPTER4ANNEXES30STATEANDTRENDSOFCARBONPRICING2023WORLDBANK.ORGFIGURE10MAPOFCARBONPRICELEVELSANDCOVERAGEOFIMPLEMENTEDCARBONTAXESANDETSs≥USD100USD0.5IndicativepricelevelbycountryEmissioncoverageinworldregionsSizerepresentstotalemissionsinregion(s)PiechartsrepresenttheshareofcoveredemissionsinworldregionsEastAsia&Pacific33%Europe&CentralAsia24%SouthAsia0%MiddleEast&NorthAfrica,Sub-saharanAfrica7%LatinAmerica&TheCaribbean2%NorthAmerica15%%Thesizeofeachregionalchartrepresentsthetotalemissionsinthecorrespondingregion,whereasthecoloredsectionistheshareofemissionsintheregioncoveredbyETSsandcarbontaxes.ThepriceforeachcountryreflectsthemainratethatappliestothegreatestportionofGHGemissions.FOREWORDSUMMARYCHAPTER1CHAPTER2CHAPTER3CHAPTER4ANNEXES31STATEANDTRENDSOFCARBONPRICING2023WORLDBANK.ORGrebateswithincarbontaxesonrevenuelevelsisalsoevident,though.SouthAfrica’scarbontaxcoversnearly10timesmoreemissionsthanColombia’satahigherratebutdeliveredasimilarvolumeofrevenues.Thesetrendsreflecttheearlystageofclimatepolicyinmanydevelop-ingcountries,butalsotheirneedtofocusonotherdevelopmentgoalsandbarrierstoimplementation.Severalinstrumentsindevelopingcountrieshaveremained“underconsideration”forsometime.ForjurisdictionswithoutbindingemissionstargetsbeforetheParisAgreement(includingnon-AnnexIcountriesxxi),therehashistoricallybeenlessofanimperativetoimplementpoliciestoreduceGHGemissions.Further,developingcountriesfacepartic-ularsocial,economic,legal,andpoliticalbarrierstoimplementingcarbontaxesorETS.58Inparticular,manycountriesarefocusedonincreasingenergyaccessandkeepingenergycostslow.xxiiSomecountriesareseekingtodesignandimplementmultipledirectcarbonpricingpoliciessimultaneously,whichmayhelptoaccommodatespecificsectoralcircumstancesandpoliticalorregulatoryconstraintsbutmakesdesignandimplementationmorecomplex.Forexample,Indonesia,Malaysia,Mexico,andVietnam,amongothers,areallconsideringorprogressingmultipleinstruments—applyingthemeitheratthesametimebutindifferentsectors,atdifferentlevelsofgovernance,orevenincombinationtocoverthesameemissions.Despitethesebarriers,thereisincreasinginterestincarbontaxesandETSsinregionswithlowcoverage,suchasAfrica.Therearelow-andmiddle-incomecountriesconsideringcarbontaxesorETSsinalmosteveryworldregion(Figure9).SouthAfrica’scarbontaxissofartheonlyoneofthesepoliciesimplementedinAfrica,butBotswana,59Côted’Ivoire,60Gabon,Morocco,61Nigeria,andSenegal62haveallmadeindicationsthatthereisappetitetoadopteitheracarbontaxoranETS.Côted’IvoireandSenegalhaveundertakenfeasibilityandimpactassessmentstudieswithinternationaldonorsupport,andBotswanacontinuestoexplorethefeasibilityofimplementingacarbontax.BothGabonandNigeriahavepublishedlegalframeworksforestablishingtheirrespectivedomesticETSs.Gabon’sdecreesetsupaframeworkforbothanETSandacarbonoffsettingsystem,63whileNigeria’sClimateActcreatesacouncilvestedwithpowerstoestablishanETS.64Shouldthesecarbonpricingeffortsprogress,theglobalmapofuptakecouldstarttolookverydifferent.Driversofthisgrowinginterestamongabroadersetofcountriesincludefiscalpragmatism,bordercarbonadjustments,EUaccession,andnewpolicydesigns,inadditiontoclimateaction.GovernmentsareincreasinglyrecognizingtheopportunityforcarbontaxesorETSstosupportfiscalreformbyraisingrevenuethroughamechanismthatprovidespositiveincentivesforchange.Thisisespeciallyrelevantnow,asmanycountriesfacehighlevelsofsovereigndebt65andforcountrieswhereahighlevelofinformalitycanmakeothertypesofrevenue-raising(likeVATorincometax)lesseffective.66TheexamplesinMexicodescribedinBox6provideanaptillustration,andrevenuefromcarbontaxesandETSsisdiscussedfurtherinSection2.3.TheEU’splannedCBAMincludesprovisionsforimportstotheEUtobegrantedreducedchargesiftheembeddedemissionshavealreadybeensubjecttoadirectcarbonpriceintheircountryoforigin.ForcountriesthatexporttotheEU,thischangesthepoliticsofcarbonpricing:itisnowaquestionofwhethercarbonpricerevenuesgototheEUortothecountry’sowngovernment.ThisargumentisstrongerforcountriesthathaveclosetradetieswithEurope.Forinstance,Türkiye’sMediumTermProgramme(2023–2025)explicitlyconnectsitsplansforintroducinganationalETSinTürkiyetotheEUCBAM.ThegoalofEUaccessionprovidesanincentiveforcountriesintheWesternBalkansandEasternEuropetoprepareforemissionstrading.TobeabletojointheEU,theymustputinplacemuchoftheinfrastructurefortheEUETS(e.g.,monitoring,reporting,andverificationandcompliancesystems).Finally,manycountrieshavecitedtheneedtodeliveronParistargetsandnet-zerocommitmentsasadriverforpursuingthesepolicies.67“Therearelow-andmiddle-incomecountriesconsideringcarbontaxesorETSsinalmosteveryworldregion.”(xxi)Non-AnnexIPartiesundertheUnitedNationsFrameworkConventiononClimateChangearemostlydevelopingcountries.(xxii)ForfurtherdiscussiononbarriersandcasestudiesseeA.Burns,C.Jooste,andG.Schwerhoff,“ClimateModelingforMacroeconomicPolicy:ACaseStudyforPakistan,”WorldBankGroup,PolicyResearchWorkingPaper9780,September2021;UnitedNationsEnvironmentProgramme,“TheClosingWindow:ClimateCrisisCallsforRapidTransformationofSocieties,TheEmissionsGapReport2022”(Nairobi:UnitedNationsEnvironmentProgramme,2022);andB.Doda,M.Hall,C.Haug,E.Kuneman,andT.Laroche-Theune,“CarbonPricingPotentialinEastandSouthAsia:SynthesisandCaseStudiesforIndonesia,Vietnam,andPakistan”(Dessau-Roßlau:GermanEnvironmentAgency,2023).FOREWORDSUMMARYCHAPTER1CHAPTER2CHAPTER3CHAPTER4ANNEXES32STATEANDTRENDSOFCARBONPRICING2023WORLDBANK.ORG2.5ProgressoninternationalcooperationtoimposeacostonemissionshasbeenlimitedWhilediscussionshavecontinuedininternationalorganizationsaroundminimumcarbonpricesoraligningpolicies,therewerenoconcretestepsforward.TheInternationalMonetaryFundandothershavecontinuedlong-runningcallsforgreatercooperationoncarbonpricing.72InDecember2022,theGroupofSeven(G7)formallylaunchedits“ClimateClub”asoneflagshipoftheGermanG7presidency.73Akeyquestionformanyoftheseinitiatives,especiallyregardingminimumcarbonprices,isagreeingondefinitions.Forexample,someinitiativesfocusonindirectcarbonpricing(e.g.,eliminatingfossilfuelsubsidies),whileothersarefocusedonlyondirectcarbonpricing(seeBox1,Box3,andAnnexAfordefinitionsusedinthisreport).InternationalMaritimeOrganization(IMO)memberstateshaveagreedinprincipletopricecarbondioxideemissionsfromglobalshipping,butdetailsareyettobesettled.TheIMOadopteditsinitialstrategytoreduceGHGemissionsfrominternationalshippingin2018.Thisincludesatargettoatleasthalvethesector’sGHGemissionsby2050relativeto2008.Overthepastyear,IMOnegotiationshavefocusedonrevisingtheinitialstrategy—withmanyIMOmemberstatescallingforfulldecarbonizationby2050—whichwillneedtobeagreedoninJuly2023.Toachievethesegoals,theIMOisdevelopingabasketofclimatepolicymeasuresthatarelikelytoincludeamechanismtopriceGHGemissionsfrominternationalshipping.Inrecentmeetings,manygovernmentsandindustryrepresentativesvoicedsupportforimplementingamarket-basedmeasuretopriceGHGemissionsfrominternationalshippingaspartofabasketofmeasuresalongsidetechnicalstandards.Suchmarket-basedmeasurescouldincludecarbonleviesandfeebatesystems.xxiii,74TheInternationalCivilAviationOrganization(ICAO)agreedonthemainparametersforitsCarbonOffsettingandReductionSchemeforIn-ternationalAviation.Atits41stAssemblymeet-inginOctober2022,theICAOAssemblyagreedtosetthebaselineforoffsettingrequirementsat85%of2019emissionsforboththevolun-tary(2024–2026)andmandatory(2027–2035)phases.Airlinesmustoffsetanyemissionsabovethisbaseline.Theoriginalplanshadforeseenthatthebaselineshouldbebasedontheaver-ageemissionsof2019and2020.Owingtothestrongdeclineofpassengernumbersin2020duetothepandemic,thiswouldhaveentailedamuchstricterbaseline.Atthesamemeeting,ICAOalsoadopteditslong-termaspirationalgoal,anon-bindingtargettoreachnet-zerocarbonemis-sionsby2050.BOX6USINGCARBONPRICINGASAFISCALTOOL:MEXICOSUBNATIONALSCASESTUDYMexicoisthefirstcountryinLatinAmericaandtheCaribbeanwithoperationalsubnationalcarbontaxes—eightstateshaveintroducedagreenfiscalreformwithcarbonpricingelements.Zacatecasledthewayin2017,followedbyBajaCalifornia(whichhassincebeensuspended)andTamaulipas(repealedin2022),andsubsequentlytheStateofMexico,Querétaro,andYucatánin2022.DurangoandGuanajuatoarethemostrecentstatestoenactcarbontaxes.Durango’scarbontaxenteredintoforceinJanuary2023andGuanajuato’sisscheduledforJune2023.Morecouldbeimplementedinthefollowingyears,withacarbontaxunderconsiderationinthestateofJalisco.68Measuresadoptedincludenewtaxesthatprovideincentivestoinvestingreen,low-carbontechnologiesandinfrastructure,aswellastofinancegovernment-sponsoredclimatechangeadaptationmeasures,whilereducinginefficientsubsidiesanddistortionarytaxation.InYucatanandGuanajuato,taxesonactivitiesthatcontributetoground,underground,andwaterpollutionaccompaniedcarbontaxes.Zacatecas,BajaCalifornia,Tamaulipas,andthestateofMexicoallintroducedcarbontaxesasapartofabroaderreformpackagewithsignificantenvironmentalprotectionelements.69InZacatecasandQuerétaropackagesincludedtaxesonmineralsextractionandwaste.70Thecarbontaxratesareequivalenttoorhigherthanthoseinseveralhigh-incomecountries.ThefivestatesthatapplyacarbontaxasofApril2023—Durango,Querétaro,StateofMexico,YucatánandZacatecas—haveplacedanaveragecarbonpriceofaroundMXN266.6(USD14.78)/tCO2e.ThehighestrateamongtheMexicanstates,Querétaro’s,isaboveUSD30/tCO2e,asignificantrateforadevelopingeconomy.Legislators’rationalesmayprovideusefulexamplesandlessonsforotherjurisdictions.Forexample,adesiretoenhancefiscalspaceatthesubnationallevelduetospendingpressuresfromtheCOVID-19pandemicdrovetheadoptionofthetaxinTamaulipas(whichhassincebeenrepealed).InthestateofMexico,reformwasaimedatincreasinglocaltaxrevenuesandanincreasedemphasisontheneedforgreaterefficiencyintaxcollection.However,theconstitutionalchallengetoBajaCalifornia’sefforttoinstituteataxonemissions,andtheensuingSupremeCourtrulinginfavoroftheplaintiffs,presentsacautionarytaleregardingthecomplexitiesofsubnationalgreenfiscalreformefforts.TheMexicanfederalgovernmentandagroupofregulatedentitiessuccessfullyarguedthat,accordingtotheMexicanConstitution,onlythefederalgovernmentcanimplementataxonfuels(thetaxappliedtoemissionsgeneratedbytheconsumptionofgasolineanddiesel).Thisrulingcouldinthefuturelimitthepoweroflocallegislatorstoestablishtaxesonthecarboncontentofgasolineandotheroilproducts.71(xxiii)CentralaspectsofIMOnegotiationsrelatetoaddressingpotentialdisproportionatelynegativeimpactsonstatesfromanyclimatechangemitigationpolicies(includingcarbonpricing),fairnessandequityconsiderations,andthefutureavailabilityofzero-carbonbunkerfuels.Inthiscontext,thereisstronginterestintheuseofthepotentialrevenuesfromsuchaninstrumenttoaddresstheseissues.Revenuesgeneratedbytheinstrumentcouldbesignificant—ontheorderofUSD40toUSD60billionannuallyuntil2050—andcouldthereforeplayakeyroleinensuringaneffectiveandequitableenergytransitioninthesector.FOREWORDSUMMARYCHAPTER1CHAPTER2CHAPTER3CHAPTER4ANNEXESChapter3CarbonCrediting—MarketsandMechanisms34STATEANDTRENDSOFCARBONPRICING2023WORLDBANK.ORGCarboncreditmarketstrade“carboncredits,”whichareunitsthataregeneratedthroughvoluntarilyimplementedemissionreductionactivities.Carboncreditscanrepresentemissionreductionsachievedthrougheitheravoidance,forinstancebycapturingmethanefromlandfills,orremovalfromtheatmosphere,suchassequesteringcarbonthroughafforestationordirectlycapturingcarbonfromtheairandstoringit.Eachcarboncreditrepresents1metrictonofcarbondioxideequivalent(tCO2e)reducedorremoved.Supplyofcarboncreditsisrepresentedbyissuancesfromcarboncreditingmechanisms(seeAnnexA),includinginternationalcreditingmechanismsestablishedunderinternationaltreaties,suchastheKyotoProtocolandParisAgreement;xxvdomesticcreditingmechanismsestablishedbyregional,national,orsubnationalgovernments,suchastheCaliforniaComplianceOffsetProgram;andindependentcreditingmechanisms(orindependentstandards),whichincludestandardsandcreditingmechanismsmanagedbyindependentnongovernmentalentities,forexampleVerra’sVerifiedCarbonStandard(VCS)andGoldStandard.Demandforcarboncreditscomesfromarangeofsources.Voluntarydemandconsistsof(mostlyprivate)entitiespurchasingcarboncreditstomeetvoluntarygoalsorgreenclaims.Internationalcompliancedemandincludescountriesseekingcreditsrepresentingemissionreductionsinothercountriestohelpmeettheirownemissionreductioncommitments,suchasthoseestablishedundertheParisAgreement,andairlinespurchasingcreditseligibleformeetingtheirobligationsestablishedundertheCarbonOffsettingandReductionSchemeforInternationalAviation(CORSIA).Domesticcompliancedemandcomesfromcompaniesseekingcreditstomeettheirobligationsunderadomesticlaw,usuallyanemissionstradingsystem(ETS)oracarbontax.Inthesecases,thereareinteractionsbetweenthepricesignalsandemissionreductionincentivesprovidedthroughthecarbontaxorETSpolicyandcarboncrediting.Demandcanalsocomefromresults-basedclimatefinancewheregovernmentsorinternationalorganizationsincentivizeclimateactionbypurchasingcarboncredits.Thisapproachdiffersfromthevastmajorityofpublicclimatefinance,whichisprovidedupfront.Theemissionsreductionsachievedhelprecipientcountriesmeettheirnationallydeterminedcontribution(NDC)targetsandarenotclaimedorcountedbythegovernmentsororganizationsprovidingthefinance.BOX7DEFINITIONS:CARBONCREDITINGMARKETSANDMECHANISMS(xxv)Article6oftheParisAgreementprovidestheframeworkforinternationalcompliancecarbonmarkets;Article6.4establishesacentralizedmechanismsupervisedandgovernedbytheUnitedNationsFrameworkConventiononClimateChange,whichisexpectedtobeadministrativelysimilartotheCDMoftheKyotoProtocol;Article6.2,ontheotherhand,providesabasisforbilateralorplurilateralvoluntarycooperationamongcountries,whichpotentiallyoffersflexibilitytoreducegreenhousegasemissionsthroughavarietyofprocesses,mechanisms,andstandards.Challengingmacroeconomicconditionsalsoimpactedcarboncreditmarkets,althoughtheimpactonpriceswasnotuniform.Theseheadwindswerecompoundedbyprominentpubliccriticismoftheintegrityofsomecarboncreditsandcontinueduncertaintyaroundbest-practiceuseofcarboncreditsbycompaniesforvoluntarypurposes.Despitethesedifficulties,carboncreditmarketscontinuetoevolveandbecomemoresophisticated,withnewinvestors,financialproducts,technologicalplatforms,andserviceproviderslayingthefoundationsforwhatsomeexpectwillbeadecadeofsignificantgrowth.Guidancefromdifferentvoluntaryinitiativesaimedatdrivinghigh-integrityactionistakingshape,withtheseeffortsaccompaniedbygrowingregulatoryinterest.ImplementationofinternationalcooperationunderArticle6oftheParisAgreementisprogressing,andthepastyearsawseveralnewbilateralagreementsandthefirstprojectsthatwillgenerateauthorizedemissionsreductions.3.1Supplyofcarboncreditsdroppedslightly,butthetrendisnotuniformacrossmechanismorprojecttypesIndependentcreditingmechanismsandstandardsagainissuedthemostcarboncreditsbutsawvolumesdropin2022.Independentcreditingmechanismsissued275millioncredits,whichaccountedfor58%ofthe475millioncreditsissuedin2022(seeFigure11).xxivThisrepresentedadropof22%increditsissuedcomparedwith2021.Aftertwoyearsofrapidgrowth,carboncreditmarketsslowedin2022.Supplyofnewcreditsanddemandfromendusersbothfellslightly,whichrepresentsareversalofthesharpincreasesexperiencedin2021.Whileindependentcreditingmechanismsstilldominatesupply,issuancesfromtheCleanDevelopmentMechanism(CDM)havesurged,andmorecountriesareconsideringestablishingdomesticcreditingmechanisms.Voluntarycorporateuseremainsthemainsourceofdemand,butcompliancedemandisbecomingmoreimportant.(xxiv)Thefigurefortotalcreditsissuedrepresentsanetvaluethatremovesoverlapwherecreditsareconvertedorreportedundermultiplecreditingmechanisms.FOREWORDSUMMARYCHAPTER1CHAPTER2CHAPTER3CHAPTER4ANNEXES35STATEANDTRENDSOFCARBONPRICING2023WORLDBANK.ORGHowever,thesupplyofcreditsfrominternationalcreditingmechanismsgrewin2022,accountingformorethan30%ofallcreditsissued.Thesharpincreaseseenin2022mayhavebeendrivenbydevelopmentsattheinternationallevel,withthedecisiontakenatthe26thConferenceofthePartiesoftheUnitedNationsFrameworkConventiononClimateChange(COP26)thatsomeCDMcreditscouldbeusedtomeetcountries’firstnationallydeterminedcontribution(NDC)targets,xxviaswellastosatisfyincreaseddemandforvoluntaryoffsettingpurposes.75Issuancesfromdomesticmechanismsrepresentasmallportionoftotalissuancesandremainedfairlysteadyoverthepastyear.However,thismaskstheincreasingissuancefromdomesticmechanismsthatutilizeinternationalorindependentcreditingmechanismstogeneratecredits.xxviiForexample,SouthAfricahaslistedaround13millioncreditsissuedbytheCDM,GoldStandard,andVCSinitsdomesticCarbonOffsetAdministrationSystem.76Morecountriesarelookingtosetupdomesticcreditingmechanisms,ofteninconjunctionwithanemissionstradingsystem(ETS)orcarbontaxthatwouldbecomeasourceofdemandforcredits(seeFigure12).In2022bothIndonesiaandVietnamtookstepstoestablishtheirowndomesticcreditingmechanisms,whileSouthAfricaconsultedonaframeworktoassesstheeligibilityofdomesticstandardstosupplycredits.77India’sparliamentpassedlegislationtoestablishadomesticcreditingmechanism,alongsideapotentialETSthatwouldactasasourceofdemand.78InJune,Canadapublishedthefirstmethodologyforitsnewdomesticcreditingmechanism,creditsfromwhichcanbeusedforvoluntarypurposesorbyfirmstomeetcomplianceobligationsunderthefederalOutput-BasedPricingSystem.79Multiplefactorsaredrivingthetrendtowardmoredomesticsupply,includingdemandfromnationalETSsandcarbontaxes,aswellaslocalvoluntarydemandforcarboncredits,ortogeneratecreditsunderArticle6oftheParisAgreement.Currentsupplyisstillconcentratedoncreditingfromrenewableenergyactivities,butnature-basedsourcesmaybecomeincreasinglyimportant.BasedoncarboncreditingmechanismregistrydatacompiledbyEcosystemMarketplace,thepercentageofissuancesofcreditfromrenewableenergyactivitieshasgenerallybeenincreasingsince2018,reaching(xxvi)CreditsgeneratedfromCDMprojectactivitiesorprogramsofactivitiesregisteredafterJanuary1,2013,areeligibletobeusedtomeetcountries’firstNDCtarget.AtCOP27countriesadoptedfurtherguidanceonhowthiswillbeimplementedintheregistryandhowtoaccountforCDMcredits.SeeBox10formoredetails.(xxvii)Thesecreditsareincludedonlyonceinthefigurestoavoiddoublecountingoftheemissionreductionsachievedbythesemechanismsandthevolumeofcreditsavailabletoendusers.Wheresufficientdataareavailable(e.g.,California)theyareincludedin“domestic”mechanisms;otherwise,theyarelistedundertheoriginalissuingmechanism.FIGURE11GLOBALVOLUMEOFISSUANCESBYCREDITINGMECHANISMTYPE(2018—2022)ClimateActionReserve(2.5%)AmericanCarbonRegistry(4.6%)PlanVivo(0.4%)VerifiedCarbonStandard(42%)GoldStandard(8.2%)AustraliaEmissionsReductionFund(3.7%)BritishColumbiaOffsetProgram(1%)AlbertaEmissionOffsetProgram(1.3%)CaliforniaComplianceOffsetProgram(2.4%)ThailandVoluntaryEmissionReductionProgram(0.9%)InternationalIndependentDomesticCleanDevelopmentMechanism(32%)010020030040050060020182019202020212022MilliontCO2e“Morecountriesarelookingtosetupdomesticcreditingmechanisms,ofteninconjunctionwithanemissiontradingsystemorcarbontax”FOREWORDSUMMARYCHAPTER1CHAPTER2CHAPTER3CHAPTER4ANNEXES36STATEANDTRENDSOFCARBONPRICING2023WORLDBANK.ORGFIGURE12MAPOFNATIONALANDSUBNATIONALCREDITINGMECHANISMSNovaScotiaQuébecOffsetCreditingMechanismBritishColumbiaOffsetProgramImplementedUnderDevelopmentRGGICO2OffsetMechanismAlbertaEmissionOffsetSystemSaskatchewanGHGOffsetProgramWashingtonCreditingMechanismSriLankaCarbonCreditingMechanismSouthAfricaCreditingMechanismIndo-PacificCarbonOffsetsSchemeMexicoCreditingMechanismKazakhstanCreditingMechanismThailandVoluntaryEmissionReductionProgramTaiwan,ChinaGHGOffsetManagementProgramSpainFES-CO2ProgramSwitzerlandCO2AttestationsCreditingMechanismAustraliaEmissionsReductionFundChinaGHGVoluntaryEmissionReductionProgramColombiaCreditingMechanismChileCreditingMechanismCaliforniaComplianceOffsetProgramJointCreditingMechanismRepublicofKoreaOffsetCreditMechanismJ-CreditSchemeTokyoCap-and-TradeProgramBeijingForestryOffsetMechanismBeijingParkingOffsetCreditingMechanismGuangdongPuHuiOffsetCreditingMechanismSaitamaTargetSettingEmissionsTradingSystemSaitamaForestAbsorptionCertificationSystemChongqingCarbonOffsetMechanismFujianForestryOffsetCreditingMechanismIndiaCreditingMechanismSakhalinOblastPilotCreditingMechanismUKWoodlandCarbonCodeVietnamCreditingMechanismIndonesiaCreditingMechanismCanadaFederalGHGOffsetSystemCirclesrepresentcreditingmechanismsinsubnationaljurisdictionsandcities.“Implemented”creditingmechanismshavetherequiredframework(e.g.,legislativemandate)aswellasthesupportingprocedures,emissionreductionprotocolsandregistrysystemsinplacetoallowforcreditingtotakeplace.Forsubnationaljurisdictions,thecolorreflectsthestatusofsubnationalinstruments.FOREWORDSUMMARYCHAPTER1CHAPTER2CHAPTER3CHAPTER4ANNEXES37STATEANDTRENDSOFCARBONPRICING2023WORLDBANK.ORG55%ofcreditsissuedin2022(seeFigure13).xxviiiRenewableenergyactivitiesrepresentaround45%ofregisteredprojectsandhavedominatedsupplyincarboncreditmarketssincetheirinception.However,dramaticfallsinthecostsofrenewablesoverthepastdecademeanthat,inanincreasingnumberofcases,theseactivitiesareeconomicallyattractivewithouttheextrarevenueofferedthroughcarboncrediting.Insuchcases,theresultingemissionreductionswouldnotmeetfinancialadditionalityrequirements.Asaresult,supplyofcreditsfromnewlarge-scalerenewableenergyprojectswilllikelyreduceovertime,withsomeindependentcreditingmechanismshavingalreadyrestrictedeligibility,largelytoactivitieslocatedinleastdevelopedcountries.80Instead,therehasbeenagrowingfocusonnature-basedactivities,coveringemissionsreductionsfromagricultureaswellasforestryandlanduseactivities.Thesecreditssometimesoffercobenefitsvaluedbybuyers,butalsocomewiththeirownuniquechallenges(seediscussiononREDD+inBox8).Whileissuancesofforestryandlandusecreditshavevariedinrecentyears,withasubstantialdropinbothabsoluteandrelativetermsin2022,thiscouldsoonchange.AccordingtoEcosystemMarketplace,in202254%ofnewprojectregistrationswereforforestryandlanduseactivities,suggestingapotentiallysignificantexpansionofsupplyinthefuture.Bottlenecksinthecarboncreditsupplychainareprovingabarriertoexpansion.RequestsforprojectregistrationandverificationatVerra,whichoperatesVCS(thelargestindependentcreditingmechanism),grewby243%and90%,respectively,in2022comparedwith2021.81Thissuddengrowthofrequestscontributedtodelaysinissuingcredits.Theinfluxofnewentrantstothemarket,whowerecompletingapplicationsforthefirsttime,alsoledtolonger-than-usualreviewperiodsduringwhichdocumentshadtoberevised.Ascarcityofaccreditedvalidatorsandverifiersalsosloweddowntheregistrationofnewprojectsandissuanceofcredits.82Restrictionsoncreditissuancebysomecountries,suchasinIndonesia,alsocontributedtowardreducedsupplyin2022.83Whilethesebottlenecksposeimmediatechallenges,theyalsosuggestthatapotentiallysignificantamountofunrealizedsupplycouldbebroughttomarketinthecomingyearsascreditingmechanismsandotherstakeholdersadjusttotheincreaseddemand.FIGURE13PERCENTAGEOFTOTALISSUANCEBYPROJECTCATEGORYANDYEARAgricultureForestryandLandUseWasteDiposalChemicalprocesses/IndustrialManufacturingHousehold/CommunityDevicesEnergyEfficiency/FuelSwitchingRenewableEnergyOther0%20%40%60%80%100%20182019202020212022“Restrictionsoncreditissuancebysomecountries,suchasinIndonesia,alsocontributedtowardreducedsupplyin2022.”(xxviii)Dataonissuances,retirements,andprojectregistrationsbyprojectcategoryhavebeenprovidedbyEcosystemMarketplaceandcoverthefollowingcreditingmechanisms:AmericanCarbonRegistry,CaliforniaAirResourcesBoard,CityForestCredits,CleanDevelopmentMechanism,ClimateActionReserve,GlobalCarbonCouncil,GoldStandard,PlanVivo,UKPeatlandCode,UKWoodlandCarbonCode,andVerifiedCarbonStandard.FOREWORDSUMMARYCHAPTER1CHAPTER2CHAPTER3CHAPTER4ANNEXES38STATEANDTRENDSOFCARBONPRICING2023WORLDBANK.ORGBOX8CARBONCREDITMARKETSASAVEHICLETOFINANCEFORESTPRESERVATIONTropicaldeforestationisamajorsourceofcarbonemissions,andcarbonfinancehaslongbeenconsideredawaytoincentivizeforestpreservation.Landusechange,primarilyfromdeforestation,wasresponsibleforapproximately11%ofnetglobalgreenhousegas(GHG)emissions(around6.5gigatonsofcarbondioxideequivalent)in2019.84Reducingandultimatelyreversingemissionsfromdeforestationisthereforeakeypartofreachingglobalnet-zeroemissions.Carboncreditingmarketscansupportthisbyprovidingpaymentsforemissionsreductionsthroughreducingdeforestationandforestdegradationaswellasimprovingforestrymanagement—collectivelyreferredtoaswellasREDD+.REDD+isimplementedthroughproject-andjurisdictional-levelapproaches,eachwithitsownbenefitsandchallenges.Thecarboncreditingmechanismsdiscussedinthisreportaregenerallyimplementedattheprojectlevel.Theseactivitiescoveradefinedareaofforestedlandandaretypicallyimplementedbyprivate-sectordevelopers.Inparallel,variousinitiativeshavesoughttodevelopprogramsatthejurisdictionallevel.Theseapproachesaccountforemissionsacrossallforestedareawithinacountryorsubnationaljurisdiction(e.g.,aprovince)andaremanagedbygovernmentsorpublicauthorities.Bytakingabroaderperspectiveandexpandingthecoverage,jurisdictional-levelREDD+providesanopportunitytoscaleupcreditingfromREDD+andaddresssomeofthechallengesfacedbyproject-levelactivities.Foremostamongtheseistheriskofemissionsleakagewithinthejurisdiction(i.e.,thattheavoideddeforestationwillsimplyleadtodeforestationelsewhere)andtheaccuracyofbaselinecalculations.85WhilemanyconsiderthatjurisdictionalREDD+hasthepotentialtoimprovetherobustnessofthecreditsgenerated,italsofaceschallenges,includingtheneedtobuildthehumanandinstitutionalcapacitiestomanageupscaledprograms,calculatingbaselinescenariosatthejurisdictionalornationallevel,andmanagingtheriskofinternationalcarbonleakage.In2022carboncreditswereissuedunderjurisdictionalREDD+programsforthefirsttime.Independentcreditingmechanismshavebeenissuingcarboncreditsfromproject-levelactivitiesforoveradecade—theseareincludedintheanalysisofissuancesandretirementsinthecoreofthisreport.86Sofarjurisdictionalapproacheshavemostlybeenfocusedonresults-basedpayments.In2021,MozambiquebecamethefirstcountrytoreceiveapaymentfromtheWorldBank’sForestCarbonPartnershipFacility.CostaRica,Indonesia,andGhanahavesincefollowed.AfurthermilestoneforjurisdictionalREDD+wasreachedinDecember2022,whenGuyanabecamethefirstcountrytohavetradablecarboncreditsissuedtoitundertheArchitectureforREDD+Transaction’sjurisdictionalREDD+program.ThisachievementalsoreflectsthepotentialofjurisdictionalREDD+activitiestosupplycreditsonalargescale,withthe33.47millioncreditsissuedtoGuyanarepresentingaround8%ofallproject-levelcreditsissuedin2022.87Severalcountriesannouncedtheirintentiontoissue“sovereign”carboncredits.ThesearecarboncreditscreatedbygovernmentsusingtheframeworkestablishedundertheUnitedNationsFrameworkConventiononClimateChangetoprovideresults-basedpaymentsforreduceddeforestationatthenationallevel.Theprocessestogeneratethese“sovereign”creditsdifferfromthoseofindependentcreditingmechanismsinsomeimportantrespects,includingtheapproachtocalculatingbaselines,thewayrisksofimpermanencearemanaged,andtheroleofindependentvalidatorsandverifiers.Asaresult,somehaveraisedconcernsabouttheintegrityofthecredits.88Nevertheless,thescaleofthesupplyhereissignificant,withGabonplanningtoissue90millioncreditscoveringtheperiod2010–2018.89Thepastyearalsosawnewanalysesofproject-levelREDD+activitiesfeedintoprominentcriticismoftheintegrityofthesecarboncredits.Inparticular,concernswereraisedaroundovercrediting—thatis,whenthecalculationoftheavoidedemissionsoverestimatesthelevelofdeforestationthatisassumedwouldoccurintheabsenceoftheproject—whichcastdoubtonwhetherthecreditsthereforereflectrealemissionsreductions.90AlthoughcriticismsaroundbaselinesettingandpermanenceinREDD+arenotnew,therecentgrowthofinterestincarboncreditingmarketshasagainhighlightedtheimportanceofcontinuouseffortstoimproveenvironmentalintegrity.Verra,whichwasalreadyintheprocessofreviewingtheREDD+methodologicalapproachforitsindependentcreditingmechanismVCS,announcedthatarevisedmethodologywouldbepublishedinthethirdquarterof2023.Verraexpectsthatthisnewmethodologywillimprovetheaccuracyofbaselinecalculationsandassessmentofdeforestationrisks.91Attheinternationallevel,adecisiononwhetheremissionsavoidanceactivities,whichmayincludeREDD+,shouldbeincludedintheArticle6.4creditingmechanismwillbenegotiatedatCOP-28in2023.92Box9providesanupdateonbroaderinitiativestoimproveinformationontheintegrityofcarboncredits.“REDD+isimplementedthroughproject-andjurisdictional-levelapproaches,eachwithitsownbenefitsandchallenges.”FOREWORDSUMMARYCHAPTER1CHAPTER2CHAPTER3CHAPTER4ANNEXES39STATEANDTRENDSOFCARBONPRICING2023WORLDBANK.ORGCarboncreditmarketshavethepotentialtosupportthedeploymentandscalingupoftechnologicalremovals,butonlyifcreditpricesincreasesignificantly.AstheIntergovernmentalPanelonClimateChange’sSixthAssessmentReport’schapteronthemitigationofclimatechangeindicates,limitingglobaltemperatureincreaseto2°Corlesswillrequirelarge-scaletechnologicalremovalofcarbondioxide(CO2)fromtheatmosphere.93Manyofthesetechnologiesarecurrentlyintheearlystagesofdeploymentandcostsignificantlymorethanprevailingmarketprices.Forexample,thecostsofremovalbydirectairCO2captureandstorageareestimatedatUSD250toUSD600permetricton.94Giventhedivergencewithtoday’sprices,carboncreditmarketscurrentlycannotprovideaneffectivepricesignaltosupportdeploymentoftechnologicalremovals.Inlieuofaneffectivepricesignal,severalvoluntarycorporate-ledinitiativeslaunchedin2022,seekingtosupportdevelopmentofthesetechnologiesbymakinglong-termpurchasecommitmentsfortechnologicalremovals.95Untilthereisgreaterconvergencebetweenpricesincarboncreditmarketsandthecostsoftechnologicalremovals,theywillcontinuetoplayamarginalroleinsupply.3.2Voluntarydemandisstilltheprimarydriver,althoughcompliancedemandwilllikelygrowintheyearsaheadDespiteitsrecentdecline,voluntarydemandfromcorporatesisstilltheprimarydriverbehindmarketactivity,withcompliancedemandplayingasmallrole.OverallretirementsintheregistriesofcreditingmechanismstrackedbyEcosystemMarketplaceweredownaround1.3%to196millionin2022.Thevastmajorityoftheseretirementsrepresentvoluntarydemand.xxixBasedoninformationprovidedbygovernments,around43millioncreditswereusedin2022tomeetobligationsunderdomesticcomplianceprogramsincludingETSsandcarbontaxes.xxxAround5millioncreditswerepurchasedbetweentheAustralianandSpanishgovernmentsundertheirdomesticresults-basedclimatefinanceprograms.Amongthereasonscitedbymarketanalystsfortheoverallslowdowninvoluntaryretirementsarethemacroeconomicclimate,bansontokenizationofcarboncredits,andincreasedscrutinyoftheintegrityofoffsetting(seeSection3.4).Thelattermaybecausingbuyerstodelaypurchasingandretiringcreditsuntilthereleaseoffinalguidancefromkeystandard-settinginitiatives(seeBox9).96Inspiteoftheslightyear-on-yearfall,retirementsin2022werestillmuchhigherthan2019and2020levels,upbyaround140%and70%,respectively.Thecontinueddominanceofvoluntarydemandreflectsbroadcorporateengagement:asurveyofmorethan500mediumandlargebusinessesacrosstheUnitedStatesandEuropefoundthatnearly90%considercarboncreditsimportanttocompensateforunabatedemissionsthattheyarenotcurrentlyabletoreduce.97Lookingahead,independentanalysescontinuetoforecastsignificantmarketgrowthdrivenbyvoluntarydemandoverthenextdecade.98Mostcreditsretiredcamefromrenewableenergyprojects,withbuyerstendingtowardnewervintages.Ofcarboncreditsretiredin2022,52%camefromrenewableenergyprojects,upfrom44%in2021.xxxiCreditsfromthisprojectcategoryareamongthemostavailableandlowestcostonthemarket(seeFigure14).Despitetheincreasedfocusonnature-basedactivitiesinprioryears,retirementsofcreditsfromforestryandlanduseprojectsdeclinedsignificantlybetween2021and2022,from36%to23%ofthetotal,withtheimpactsofpubliccriticismoftheseactivitiesonepossiblecauseforthe(xxix)Itisdifficulttodeterminetheprecisenumberofcreditsthatareretiredforvoluntaryuseassomedomesticcreditingsystemsandcomplianceprogramsrelyonissuanceandeithercancellationorretirementintheregistriesofindependentorinternationalcreditingmechanisms.However,giventherelativelysmallnumberofcreditsretiredunderdomesticcompliancemechanisms,thelackofCORSIAdemand,andthefactthatcountriesusingcertifiedemissionsreductions(CERs)forcompliancedosowithintheirownregistries(nottheCDMregistry),itisclearthatmostofthesecreditsareretiredforvoluntarypurposes.(xxx)ThisincludesdataprovidedbygovernmentscoveringtheAlbertaEmissionOffsetProgram,AustraliaEmissionsReductionFund,BritishColumbiaOffsetProgram,CaliforniaComplianceOffsetProgram,ColombiaCreditingMechanism,J-CreditScheme,RepublicofKoreaOffsetCreditingMechanism,SouthAfricaCreditingMechanism,SwitzerlandCO2AttestationsCreditingMechanism,andTokyoCap-and-TradeProgram.Thisnumbercouldbehigher,as,forexample,thevolumeofcreditsretiredunderChina’sGHGvoluntaryemissionreductionprogramin2022isnotavailable.Notethatsome,butnotall,oftheseretirementswillbereflectedwithinthe196millionfigureforregistriestrackedbyEcosystemMarketplace.(xxxi)BasedoncarboncreditingmechanismregistrydatacompiledbyEcosystemMarketplace.“Inspiteoftheslightyear-on-yearfall,retirementsin2022werestillmuchhigherthan2019and2020levels,”FOREWORDSUMMARYCHAPTER1CHAPTER2CHAPTER3CHAPTER4ANNEXES40STATEANDTRENDSOFCARBONPRICING2023WORLDBANK.ORGfall(seeBox8).Althoughstillonlyasmallportionoftotalretirements,theincreaseofover30%in2022inretirementsofhouseholddevicecredits,includingfromcleancookstoveprojects,suggestsmorebuyersarevaluingprojectswithsustainabledevelopmentcobenefits,evenifthepriceofthesecreditsishigher.AccordingtoAlliedOffsets,buyersarealsogenerallyseekingnewercredits,withretirementsofpost-2016vintagesgrowingsharplytoreachanewhighin2022.99DomesticcompliancedemandcouldgrowinthecomingyearsbutwillberestrictedbytheambitionofETSsandcarbontaxesaswellaslimitsonoffsetuse.AroundhalfofexistingETSsandsomecarbontaxes(e.g.,thoseofColombia,Mexico,andSouthAfrica)allowcompaniestousecarboncreditstomeettheirobligations.Nearlyallhavequantitativelimitsandrestricteligibilitytocreditsfromlocalprojects.100LowpricesinsomeETSsandcarbontaxes,togetherwithhighratesoffreeallocationandrebates,meanthatcurrentdemandfromthesemechanismsislimited.xxxiiNewETSsandcarbontaxesandthoseunderconsideration—includingfromlargeemitterssuchasIndonesia,Türkiye,andVietnam—couldboostdemandifcarboncreditsareallowedtobeusedforcompliance.Someofthisfuturedemandisalreadyknown.Forexample,Singaporehasannouncedthatfrom2024companiessubjecttothecarbontaxwillbeabletomeetupto5%oftheirliabilityusinginternationalcarboncredits.101Ontheotherhand,demandinsomedomesticcompliancemechanismsmayfall.Forinstance,inDecemberColombiapassedarevisedlawhalvingthemaximumallowableusageofcarboncreditsinthecountry’scarbontaxto50%.102Internationalagreementscouldsoonstarttodriveinternationalcompliancedemand.CountrieswithemissionsreductiontargetswillhavetocompletetheiraccountingforobligationsunderthesecondcommitmentoftheKyotoProtocolinthesecondhalfof2023.ThismayleadtosomeadditionaldemandforCERsfromcountriesthathaven’tachievedtheirtargetsandneedtobuycredits,althoughinaggregatethisisexpectedtobesmall.103MorethanthreeyearsaftertheonsetoftheCOVID-19pandemic,theInternationalCivilAviationOrganization(ICAO)expectspassengerdemandtosurpass2019levelsin2023.104Nevertheless,projectionspresentedinJune2022atICAOforecastthat,evenunderaquickrecoveryscenario,emissionslevelswouldnotsurpassthe2019baselineleveluntil2024,meaningpotentiallynocarboncreditswouldbeneededforcomplianceduringthepilotphase(2021–2023).105NewdemandcouldalsoemergefromcountriesbuyingcarboncreditstomeettheirNDCtargets.In2022thefirstprojectstogenerateauthorizedcreditsunderArticle6werelaunchedaspartofSwitzerland’sintentiontomeetitsNDCtargetpartlythroughinternationalcarboncredits(seeSection3.5).Inpractice,buyercountriesmayusedomesticcompliancemarketsasavehicletosourcethesecredits,asSingaporeisplanning.CompanieswouldsurrenderinternationalcarboncreditstomeettheirobligationsunderanETSorcarbontax,whilethegovernmentwouldalsoclaimtheemissionsreductions,underpinningthecreditstowarditsNDCtarget.3.3CarboncreditpricesandtrendsvariedacrossmarketsegmentandprojectcategoryWhilepricesforexchange-tradedcreditsfellacrossallcategories,somemarketparticipantssawpricesrise.TheinitialdroppromptedbyRussia’sinvasionofUkrainewasfollowedbysustainedpricedeclinesfortherestoftheyear.Theextentofthedeclinevariedamongcredittypes,withnature-basedcreditsexperiencingthegreatestdrop,fromahighofaroundUSD16toclosetheyearatunderUSD5(seeFigure14).AccordingtoEcosystemMarketplace,somemarketactorshavepointedtothe(xxxii)Freeallocationofallowancesandrebatesbothreducetheportionofaregulatedentity’semissionsfacingacarbonpriceobligation—needingtobuyadditionalallowancesorpayacarbontax—andthatcouldinsteadbemetbysurrenderingoffsetsiftheyareeligible.“Althoughstillonlyasmallportionoftotalretirements,theincreaseofover30%inretirementsofhouseholddevicecredits,includingfromcleancookstoveprojects,suggestsmorebuyersarevaluingprojectswithsustainabledevelopmentcobenefits,evenifthepriceofthesecreditsishigher.”FOREWORDSUMMARYCHAPTER1CHAPTER2CHAPTER3CHAPTER4ANNEXES41STATEANDTRENDSOFCARBONPRICING2023WORLDBANK.ORGgrowinguseofstandardizedcontractsasasourceofdownwardpricepressure.Bygroupingcreditsthatmeetcertainminimumcriteria,exchangesincreasemarketliquidityandfacilitateinvestments,butthespecificattributesofthehighestqualityprojects,andconsequentlytheirvalue,canbelosttoa“leastcommondenominator”effect.Toavoidthis,sellersofcreditswithfeaturesthatcanattractahigherpricemayopttosellthroughbilateraldealsratherthanonexchanges.Theresultisabifurcationinpricingandavailablecreditsbetweenover-the-counter(OTC)andexchange-tradedmarkets.Thiswasseenin2022when,despitefallsinexchange-tradedcreditprices,preliminaryanalysisfromEcosystemMarketplacecoveringselectedparticipantsintheOTCmarketsuggestedthattheaveragepriceforthoseactorsinfactincreasedbymorethan70%toUSD6.83.xxxvThisincreaseinaveragepricesisinlinewithestimatesbyothermarketanalysts,althoughthemagnitudeoftheincreasevaries.106Pricedifferentiationacrossmostcreditcategorieshasnarrowed,withexchange-tradedcreditsfromremovalprojectsnowtradingataclearpremium.UnlikeallowancesinanETS,carboncreditsarefundamentallyheterogeneous.Creditsdifferalongvariouslines,includingtheunderlyingprojecttype,thestandardissuingthecredits,thevintage,andthecobenefitsoftheactivity.Asaresult,pricesbetweendifferenttypesofcreditsoftenvaryconsiderably,reflectingboththevaryingcostsofprojectimplementationandbuyerpreferences(seeFigure14).Thisdifferentiationwasseenformuchof2022,althoughthefallingpriceofnature-basedandavoidancecreditsledtomuchgreaterconvergencebytheyear’send,withonlyremovalcreditsstilltradingataclearpricepremium.Pricedifferentialscanalsobeseenbetweencreditsfromthesameprojecttype.Forexample,assessmentsbyS&PGlobalPlattsshowthathouseholddeviceprojects,whichareprimarilycleancookstoves,locatedintheleastdevelopedcountriescommandahigherpricethansimilaractivitiesinothercountries.Inadditiontoprojectcategory,datafrom2022tradingofnature-basedcreditsonXpansivCBL’sglobalexchangeplatformshowsthatcreditvintageisalsoasignificantpricedeterminant,withnewercreditssellingforhigherprices.107(xxxiii)Comparisonbasedon2021and2022surveyreturnsfrom29respondents,representingatotaltradingvolumeof126milliontonsin2022.(xxxv)Someprojecttypesarecoveredbymorethanonecategory.FIGURE14PRICESOFSTANDARDIZEDCARBONCREDITCONTRACTS2021–2023xxxiii,xxxivFigure15PriceofStandardCarbonCreditContracts20210510152025Q1Q2Q3Q4Q1Q2Q3Q4Q1AverageCarbonCreditPriceUSD/tCO2e20222023RemovalsRenewableEnergyCORSIAEligibleNatureBasedAvoidance“Sellersofcreditswithfeaturesthatcanattractahigherpricemayopttosellthroughbilateraldealsratherthanonexchanges”(xxxiii)Removalsisabasketassessmentofcarboncreditsfromnature-basedortechnologicalprojectsthatremoveGHGemissionsfromtheatmosphere.AvoidanceisabasketassessmentofcarboncreditsfromprojectsthatavoidGHGemissions.NatureBasedreflectsnature-basedcarboncreditsfromprojectsthateitheravoidorremoveGHGemissions.RenewableEnergyreflectscarboncreditsfromrenewableenergyprojectsthatavoidGHGemissions.CORSIAEligiblereflectscarboncreditseligibleforuseintheCORSIAprogram.(xxxiv)Source:BasedondatafromS&PGlobalPlatts,2022,byS&PGlobalInc.Pricesshownaremonthlyaverages.MoredetailsonPlatts’assessmentscanbefoundinthePlatts’SpecificationGuide:https://www.spglobal.com/commodityinsights/PlattsContent/_assets/_files/en/our-methodology/methodology-specifications/method_carbon_credits.pdfFOREWORDSUMMARYCHAPTER1CHAPTER2CHAPTER3CHAPTER4ANNEXES42STATEANDTRENDSOFCARBONPRICING2023WORLDBANK.ORGFuturescontractssuggestmodestpriceincreasesinthecomingyears.Despitefallingin2022,pricesareanticipatedtoriseoverthenexttwoyears.FuturescontractstradedontheChicagoMercantileExchangeforDecember2024deliveryofCORSIA-eligibleandnature-basedcreditssettledataroundUSD2.8andUSD4.5,respectively.ThisrepresentsanincreasefromtheircurrentpricesofaroundUSD2,althoughmuchlowerthanthepricesseenin2021.Aswithspot-tradedcarboncredits,futurescontractsexperiencedfluctuationinthepastyearandthereforeexpectationsforfuturepricescouldchange.However,thepriceoffuturescontractssuggestsmarketparticipantsexpectpricestoriseandthepricepremiumforexchange-traded,nature-basedcredits,whichhadlargelydisappearedin2022,couldreemerge.xxxvi,1083.4Asthemarketcontinuestogrowindiversityandsophistication,voluntaryandregulatoryinitiativesseektoensurehigh-qualityactionTheprospectofsignificantgrowthisattractingwiderparticipationincarboncreditmarkets.Newtechnologiesandserviceofferingsarereducingbarrierstoaccessfordifferentparticipants.ThegrowthofexchangetradingsupportedthelaunchofKraneShares’firstexchange-tradedfund(ETF)focusedsolelyoncarboncreditsintheUnitedStatesinApril2022.109ETFsofferalow-costandeasy-accesswayforinvestorstogaindiversifiedexposuretoparticularassetclassesandhavebeenincreasinglyactiveincompliancecarbonmarkets.110Similarly,newprivatefundsfocusedoncarboncredits,eithertosupporttheinitialcostsofprojectdevelopmentortopurchasecreditsfromprimaryandsecondarymarkets,areattractinginvestors.111Thesefundscanofferpaymentsincashorcarboncredits,withthelattergivinginvestorstheopportunitytobenefitfromrisingcreditpriceswithoutdirectinvolvementinprojectdevelopment.Thesefundingvehiclesmayserveasmodelstoattractlarger-scalefinancing,includingfrominstitutionalinvestors.112Effortsarealsounderwaytosupportbroadergeographicalparticipation,withtheAfricaCarbonMarketsInitiativelaunchedwiththeaimofhaving300millioncarboncreditsfromAfricanprojectsretiredannuallyby2030.113Growinginvestmentandnewfinancialmodels,inturn,aresupportingadditionalsourcesofsupply.CarbonserviceproviderAbatableestimatesthatmorethanUSD10billionofupstreaminvestmentincarboncreditgenerationoccurredin2022,anapproximately40%increasefrom2021.Thenumberofnewprojectdevelopersinvolvedinregisteringcarboncreditingactivitieshasalsoincreased.114Growinginvestorinterestincarboncreditsandnewfinancialmodelsmaynowbeeasingaccesstofinanceforprojectdevelopers.115Emission-reductionprojectsoftenfacechallengesinfinancingupfrontdevelopmentcosts,asrevenuesfromsellingcarboncreditsareoftenuncertainandonlystartflowingyearsaftertheprojectisimplemented.Asthedemandforcreditsgrows,investorsandprojectfinanciersappearmorewillingtotakedirectstakesinprojectdevelopmentventuresatanearlierstage.116Newfinancialinstrumentsareprovidinganotherrouteforearly-stagefinancing.Forexample,January2023sawtheworld’sfirstpublicsaleofa“forwardcarbontoken.”xxxviiTheproceedsfromthesalecanbeusedtosupportup-frontprojectdevelopmentcosts,whiletheforwardcarbontokenscanlaterbeswappedforregularcarbontokens—whichcanbetradedorretiredforoffsettingpurposes—oncetheunderlyingemissionsreductionshavebeenverified.117AnotherexampleistheUSD50million(xxxvi)SettlementpricesonMarch31,2023,forDecember2024deliveryofCBLGlobalEmissionsOffsetFuturesandCBLNature-BasedGlobalEmissionOffsetFutures.AccessedfromCMEGroup.(xxxvii)Acarbontokenisablockchain-basedcarbonasset.“Thepriceoffuturescontractssuggestsmarketparticipantsexpectpricestoriseandthepricepremiumforexchange-traded,nature-basedcredits,whichhadlargelydisappearedin2022,couldreemerge.”FOREWORDSUMMARYCHAPTER1CHAPTER2CHAPTER3CHAPTER4ANNEXES43STATEANDTRENDSOFCARBONPRICING2023WORLDBANK.ORGEmissionReduction-LinkedBondinVietnam,whichtriestoalignup-frontfinancingrequirementswithfuturefinancialreturnsfromthegenerationofcarboncredits.118InvestorsinthebondearnareturnlinkedtothecarboncreditsgeneratedbyawaterpurifierprojectinVietnam.Moretradeisbeingfacilitatedthroughexchanges,andthenumberofplatformsisexpanding.WhileOTCtradingofcarboncreditsremainsanimportantmeansoftransaction,recentyearshaveseenasharpincreaseinthevolumestradedonpublicexchanges.Thisstalledsomewhatin2022,withthevolumestradedonXpansivCBL’sglobalexchangeplatform,theworld’slargestforcarboncredits,droppingby6%.However,thetotalvalueofcarboncreditstradedontheexchangeincreasedsignificantly,up44%toUSD795million.119Theabilitytotradecarboncreditsondifferentexchangesisalsoexpanding.TheIntercontinentalExchangeandtheEuropeanEnergyExchange,twolargecommoditiestradingplatforms,bothlistednewfuturescontractsforcarboncredits.Inaddition,severalnewexchangesandplatformsfocusedoncarbontradingwerelaunchedindifferentpartsoftheworld,includingAbuDhabi,HongKong,Kenya,Malaysia,SaudiArabia,Singapore,andThailand.120Morestandardizationwillsupportincreasedexchange-basedtrading,providingclearerpricesignalsforthewholemarket.GreaterstandardizationoftradeincarboncreditswasoneoftherecommendationsmadebytheTaskforceonScalingVoluntaryCarbonMarkets.InDecember2022,theInternationalSwapsandDerivativesAssociationlauncheditsstandarddefinitionsforthevoluntarycarbonmarket.Itprovidesasetoftermsandconditionsforphysicallysettledspot,forward,oroptionstransactions,addressingissuessuchashowtradescanbesettledandwhattodoifsettlementsaredisrupted.121Providingstandarddefinitionswillallowforgreaterharmonization,whichinturncansupportthegrowthofbothOTCandexchange-basedsecondarytrading.Inparticular,highervolumesoftradeonexchangescanprovidereliable,transparent,andup-to-datebenchmarkprices.Clearpricesignalsallowprojectdeveloperstobetterassessinvestmentopportunitiesandenablebuyerstomanagetheirpricerisks.Moreliquidsecondarymarketsalsoenablethedevelopmentofmarketindices,whichcanbeusedtoassessoverallmarketperformanceandstructureindex-linkedinvestmentvehicles.ThefirstsuchindexfocusedonthevoluntarycarbonmarketwaslaunchedinJune2022.122However,concernsaroundcarboncreditqualityposeachallengetogreaterstandardization,asbuyersseektomanagetheirriskbysourcingcreditsfromparticularprojectsorprojecttypesbilaterallyorthroughspecializedintermediaries(seeBox8).Theincreasingsizeofthemarketisbringingmoreattentiontoconcernsaboutcarbonoffsetting.Therecentgrowthinthesizeandactivityincarboncreditmarketshasintensifiedthelong-standingdebateonthequalityandroleofcarboncredits(seeBox8).Theexpandingnumberofcompanieslookingtousecarboncreditsaspartofmeetingvoluntarycorporatesustainabilitycommitmentsisalsoraisingfamiliarconcernsaround“greenwashing,”whereorganizationsgiveafalseportrayaloftheenvironmentalbenefitsoftheirproductsorservices.Companiesmustalsobeincreasinglycarefulinhowtheydescribetheiroffsettingactivities.InOctober2022,ShelllostanappealagainsttheDutchAdvertisingCodeCommittee,whichfoundthatitsadvertisementpromotingcompensationforfuelemissionsthroughcarboncreditswasmisleading.123Similarcasesagainstcorporatemarketingof“carbonneutral”and“net-zero”claimsinvolvingcarboncreditsareongoinginFranceandGermany.124“WhileOTCtradingofcarboncreditsremainsanimportantmeansoftransaction,recentyearshaveseenasharpincreaseinthevolumestradedonpublicexchanges.”FOREWORDSUMMARYCHAPTER1CHAPTER2CHAPTER3CHAPTER4ANNEXES44STATEANDTRENDSOFCARBONPRICING2023WORLDBANK.ORGRegulatorsarebecomingmoreproactivethroughdevelopingguidanceoncompanyclaimsandcarboncreditsmarkets.Untilrecently,guidanceforhowtousecarboncreditsinarobustwayhadprimarilybeenpursuedbyvoluntaryinitiatives,whichmadefurtherprogressin2022(seeBox9).Governmenteffortshavelargelyfocusedonimprovingtransparency.InMarch2022,theInternationalFinancialReportingStandardsFoundationreleasedadraftofitsclimate-relateddisclosuresguidanceforpubliclylistedcompanies.Itcallsfordisclosureoftheextenttowhichacompany’sclimatetargetsrelyoncreditsandinformationneededtoassesstheintegrityofanycreditsused.125Similarreportingrequirementswereconsultedseparatelyinothercountries,126whileinMarch2023theEuropeanCommissionlaunchedaproposalforlegislationthatwouldimprovetransparencyaroundenvironmentalclaims,includingastheyrelatetocarboncredits.127Regulationbeyondcorporatedisclosuresisalreadybeingexplored.AtCOP27,theInternationalOrganizationofSecuritiesCommissions,theleadinginternationalforumforsecuritiesregulators,launchedaconsultationonhowtoenhancetheresilienceandintegrityofvoluntarycarbonmarkets.128Asthesize,financialvalue,andcomplexityofthemarketincreases,greaterinterestfromregulatorsislikelyintheyearsahead.129Carboncreditratingagenciesareofferingbuyersanadditionalsourceofinformationoncarboncreditintegrity.Historically,buyershavereliedontheprocessesofcarboncreditingmechanismsandstandards(includingindependentverifications)andadvicefrommarketintermediariestoassessthequalityofcredits.Inaddition,specializedcarboncreditratingagenciesnowofferratingsforindividualprojectsusingassessmentsacrossseveralcriteria,includingthelikelihoodofadditionalityandriskofcarbonleakage,utilizingadvancesinmachinelearning,andgeospatialdataacquisitionandanalysis.AsofMarch2023,thethreebiggestthird-partyratingagencies—BeZeroCarbon,CalyxGlobal,andSylvera—hadassessedmorethan300projectsrepresentingmorethanhalfofalloutstandingcredits.130Theirratingsarebeingintegratedintoexchangesandonlineretailmarketplaces,131providingbuyerswithmoreinformationatthepointofpurchase.Voluntarystakeholderinitiativesareseekingtoprovidefurtherguidanceonidentifyinghigh-qualitycredits(seeBox9).Newproductsareemergingtohelpparticipantsmanagebothfamiliarandnovelrisks,tacklingcurrentlyexistingbarrierstoexpandingthemarket.Carboncreditmarketshavealwaysinvolvedrisksforbothsellersandbuyers.Forsellers,thenumberofcreditsgeneratedfromaprojectisoftenlowerthanexpected,impactingitsfinancialperformance.ThecreditsacompanybuysmaybesubjecttoBOX9RAISINGTHEINTEGRITYOFSUPPLYANDDEMANDINVOLUNTARYCARBONCREDITMARKETSSeveralinitiativesareaimingtohelpbuyerstoidentifyhigh-qualitycredits.132TheIntegrityCouncilfortheVoluntaryCarbonMarket(ICVCM),amongthemostprominentoftheseinitiatives,launchedapublicconsultationinJuly2022onitsefforttocreateaminimumglobalbenchmarkforhigh-qualitycarboncredits.Theproposedbenchmarkconsistsof10creditingattributes,termedtheCoreCarbonPrinciples(CCPs),andanassessmentframework.TheICVCMwillusetheassessmentframeworktoevaluatebothcreditingmechanismsandcreditcategories,withthosethatmeetthestandardallowedtouseaCCP-approvedlabel.InMarch2023,theCCPswerereleased,alongwiththefirstpartoftheassessmentframeworkcoveringcreditingmechanisms.ThefirstCCP-labeledcreditsareexpectedtobeavailableinthethirdquarterof2023.133Otherinitiativesarealsoworkingtoimprovetransparencyoncreditsupply,suchastheCarbonCreditQualityInitiative,whichprovidesafreeonlinetooltoassesscarboncredittypesagainstsevendifferentcriteria.134Furtherguidanceisalsoemergingonhowcompaniesshouldusecarboncredits.InJune,theVoluntaryCarbonMarketsIntegrityInitiative(VCMI)launcheditsprovisionalClaimsCodeofPracticeforpubliccomment.Itprovidesguidanceforcompaniesonwhenandhowtheyshouldusecarboncreditsaspartoftheirnet-zerotargets.Thecodeestablishesthreeclaimtypes—gold,silver,andbronze—dependingonacompany’sprogressinreducingemissionswithinitsvaluechainandthenumberofitsremainingemissionsitoffsetsthroughhigh-qualitycredits.Bystandardizingtheclaimsthatcompaniesmake,theVCMIhopestoincreasetransparencyoverhowcarboncreditsareused,ensuringtheycomplement,anddonotdelay,companies’owndecarbonizationactions.135ThefinalClaimsCodeofPracticewillbepublishedin2023.TheVCMIcomplementsworkbytheScienceBasedTargetsInitiative,whichprovidesguidanceforcompaniessettingParisAgreement–aligneddecarbonizationplans,andtheroleofoffsetsinmeetingthosetargets.ThequestionofoffsetusewasalsoaddressedoverthepastyearbytheUnitedNationsHigh-LevelExpertGroupontheNet-ZeroEmissionsCommitmentsofNon-StateEntities—theexpertgrouprecommendedthathigh-qualitycreditsshouldnotbecountedtowardinterimemissionstargetsonanetzero–alignedpathway,butratherusedonlytocompensateforadditionalemissions.136FOREWORDSUMMARYCHAPTER1CHAPTER2CHAPTER3CHAPTER4ANNEXES45STATEANDTRENDSOFCARBONPRICING2023WORLDBANK.ORGexternalcriticism,causingreputationaldamage.Newproductsarenowbeingdevelopedtoinsureagainstdifferentrisksfacedbybuyers,suchaslossesduetothird-partynegligenceorfraud.137Forexample,inJanuary2023thestart-upcompanyKitalaunchedaproductcoveringbuyersagainstthenondeliveryriskofforwardpurchasedcarbonremovalcredits.138Suchmeasuresaimtoencouragemoreinvestmentintoemission-reductionprojects.Today’smarketactorsalsofacenewtypesofrisks.Theseincludedirectgovernmentinterventions—forinstance,thetemporarypauseonnewissuancesannouncedbyIndonesia139andamoratoriumonnewprojectsimposedbyPapuaNewGuinea140—orfailingtoapplycorrespondingadjustmentsunderArticle6(seeSection3.5).InsuranceagainstthesemorepoliticalrisksisbeingexploredbytheMultilateralInvestmentGuaranteeAgency,includingtocovertheeventofarevocationofArticle6authorizations.141Therapidgrowthofdemandforcarboncreditshasencouragedstakeholderstoexploreandleveragedigitaltechnologiesincludingblockchain,seekingtoreducetransactioncostsandimprovetransparency.Somecarbonmarketactors—suchasregistries,exchanges,orWeb3providers—areusingblockchaintechnologyforprocessesliketrackingcarboncredittransactionsormonitoring,reporting,andverification(MRV).142Proponentsarguethattheimmutablerecordofdatawithinablockchaincanimprovetheauditabilityofemission-reductionprojectdata,streamliningverificationprocessesandthusreducingtransactioncostsandenhancingtrustamongmarketparticipants.Otherspointoutlimitations,inparticularthatblockchainbyitselfdoesnotassuredataqualityorintegrityandthedataenteringthesystemneedsindependentqualityassurancetoensurethatitisreputablebeforeitentersthesystem.Examplesofblockchaintechnologyusecasesincludeanumberofinitiatives.Forexample,inDecember2022,theWorldBank,togetherwiththegovernmentofSingaporeandtheInternationalEmissionsTradingAssociation(IETA),launchedtheClimateActionDataTrust(CADTrust)—afree,open-sourceglobalplatformthatconnects,aggregates,andharmonizescarboncreditdata.143Theplatform’sprimarygoalistosupportreportingincarbonmarketsandenabletransparentaccountingofemissionreductionunitsinlinewiththeParisAgreement.144TheCADTrustisdesignedtobedecentralized,withdatastoredlocallybyregistriesandgovernments,andauditablebyleveragingblockchaintechnologytorecordanimmutablehistoryoftransactions.Byconnectingvariousregistriesworldwide,thesystemshouldhelptodetect“doubleclaiming”—whenmultipleentitiesclaimthesameemissionsreductions.Newrestrictionshaltedthedramaticsurgeoftokenizationofexistingcarboncredits,butemergingguidanceraisesopportunitiesandchallenges.Thegrowthofcarboncredittokenswasamajordevelopmentacrosslate2021into2022.Tokensarecreatedviaa“bridging”process,wherecarboncreditsarecanceledorretiredinacreditingmechanismregistryandreissuedasblockchain-basedcryptoassets.Tokenizationofcreditsoffersthepossibilityofincreasingtransparencyandexpandingmarketparticipation,therebycreatingnewsourcesofdemandandimprovingmarketliquidity.Thebridgingprocessdroveasurgeofretirements.Forexample,betweenOctober2021andMay2022,theToucanProtocolhadbridged22millioncarboncredits—equivalenttomorethan10%ofcarboncreditsretiredinthe2022calendaryear.145Followingpubliccriticismofthequalityofthebridgedcreditsandconcernsovertheuseofcarbontokens,146inMayandJunethemajorindependentcreditingmechanismsannouncedbansontokenizationoftheircreditswithoutexplicitapproval.147Verra,theAmericanCarbonRegistry,andtheGoldStandardsubsequentlylaunchedpublicconsultationsaddressingtheconditionsandprocessfortokenizingtheircredits.Althoughresponsesvaried,thegeneralconsensuswasthatindependentcrediting“Newrestrictionshaltedthedramaticsurgeoftokenizationofexistingcarboncredits,butemergingguidanceraisesopportunitiesandchallenges.”FOREWORDSUMMARYCHAPTER1CHAPTER2CHAPTER3CHAPTER4ANNEXES46STATEANDTRENDSOFCARBONPRICING2023WORLDBANK.ORGmechanismsshouldallowtokenizationbutadoptsafeguardstomanagepotentialrisks.Accordingly,GoldStandardandotherswillberollingoutpilotsin2023totestoutvariousdigitalassetcreationmodelsthatcanbestintegratewiththeirregistryanddevelopingbestpracticeguidelinesfortokenization,buildingoninitialrecommendationslaidoutbyIETA’sTaskforceonDigitalClimateMarkets.xxxviii3.5ImplementationofArticle6isprogressingonvariousfrontsProgresswasmadeonArticle6onseveralfrontsatCOP27,particularlyaroundinfrastructureandreportingrequirements.Article6oftheParisAgreementcoverscooperationbetweencountries,includingthroughcarbontrading.ThedealreachedatCOP26,in2021,providedaframeworkforreportingandaccountingfor“internationallytransferredmitigationoutcomes”(ITMOs,Article6.2),aswellasaninitialrulesetforthenewArticle6.4creditingmechanism.ThedecisionsadoptedinNovember2022atCOP27sawfurtherprogressonreportingtemplates,infrastructuredesign,andguidelinesfortheArticle6reviewprocess,aswellasseveraloperationalprovisionsoftheArticle6.4mechanism.Thisincludedintroducingtheconceptof“mitigationcontributionA6.4ERs,”whichareemissionreductionsgeneratedthroughtheArticle6.4mechanismbutnotauthorizedforinternationalcomplianceuse.Instead,thesecreditsmaybeusedforpurposesincludingresults-basedclimatefinance,domesticcarbonpricingschemes,orvoluntaryaction.SubstantialworkremainstofinalizetherulesforArticle6.AnextensiveprogramoffurtherworkonArticle6agreeduponin2021willtakeseveralyearstoimplement.Followingprogressin2022,manyoftheoutstandingdecisionsaretechnicalinnature,suchasadoptingnewtoolsforreportingquantitativeinformationinastandardizedelectronicformat.ThenegotiationsatCOP27inNovember2022alsobroughttolightnewissues.Amongthesewasauthorization,theprocessbywhichacountryagreestoapplycorrespondingadjustmentsxxxixforcreditsitbuysorsells.Debatecenteredaroundwhenemissionsreductionswouldbeauthorizedandwhetherthisauthorizationcouldberevokedoramendedatalaterstage.Retroactivechangestoauthorizationstatuswouldhaveimpactsforbothsellersandbuyers,ascorrespondingadjustmentsareneededforcreditstobeeligibleforcertainuses(e.g.,tomeetoffsettingobligationsunderCORSIA).AnagreementonrequirementsformethodologiesforArticle6.4activitieswasalsonotreached(seeBox10).TheseissueswillnowbeconsideredatCOP28negotiationsin2023.(xxxviii)GoldStandardhasselectedfiveWeb3companiestocollaboratewithbasedontheirparticipationinitsWorkingGrouponDigitalAssetsforClimateImpact:Bitgreen,Earthchain,Flowcarbon,Thallo,andToucan.Seehttps://www.goldstandard.org/blog-item/tokenisation-consultation-feedback-and-next-steps-gold-standard.(xxxix)“Correspondingadjustment”isanaccountingmechanismestablishedunderArticle6.2oftheParisAgreementtoavoiddoublecounting.Emissionreductionsthathavebeenauthorizedfortransferbythesellingcountry’sgovernment(knownasinternationallytransferredmitigationoutcomes,orITMOs)maybesoldtoanothercountry,butonlyonecountrymaycounttheemissionreductiontowarditsNDC.WhensellingITMOs,thetransferringcountryincreasesitsemissions(emissionsbalance/NDC)byanamountequaltotheITMOsforpurposesofreportingNDCprogress,andtheacquiringcountrymakesanequivalentsubtractiontoreflectitsuseoftheITMOstomeetthecountry’sNDCtarget.BOX10TRANSITIONINGFROMTHECLEANDEVELOPMENTMECHANISMTOARTICLE6.4Establishedin1997throughtheKyotoProtocol,CDMhasplayedapivotalroleinthedevelopmentofcarboncreditmarkets.Itistheworld’slargestcarboncreditingmechanism,witharound8,000registeredprojectsandmorethan2.3billioncertifiedemissionreductions(CERs)issued.AtCOP21,countriesagreedtoestablishanewmechanismunderArticle6.4oftheParisAgreement.AmongthemostpressingissueswastodeterminetherelationshipbetweenactivitiesundertheCDMandthenewmechanism.AtCOP26,countriesagreedthatemissionsreductionsachievedafter2020fromCDMprojectscouldnotbeissuedasCERs,butCDMprojectswouldbeeligibletoapplytotransitiontothenewArticle6.4mechanism,oncetherelevantprocesseswereinplace.TheprojectsthatsuccessfullytransitionedwouldthenbeabletoissuecreditsthroughArticle6.4.NorestrictionswereplacedonissuancesofCERsfromemissionsreductionsachievedupuntiltheendof2020.TheoutcomefromCOP26createdasupplygapforpost-2020emissionsreductionsfrominternationalcreditingmechanisms.ThequickertheArticle6.4mechanismismadeoperational,theshorterthedurationofthegapwillbe.Initialprogresswasslow,astheArticle6.4SupervisoryBody,whichoverseesthemechanismandisresponsibleformanyoperationaldecisions,couldnotmeetuntilJuly2022duetocountrydisagreementsoverthebody’smembership.Itsubsequentlyadoptedseveralrecommendationstomoveforwardwithimplementation,althoughnoagreementemergedonthekeytopicofmethodologies.ThisisacoredesignfeatureofArticle6.4onwhichresolutionwillnowbesoughtin2023.AtCOP27furtherguidancewasagreedonconcerningtherulesandprocessesfortransitioningCDMprojects.148Nevertheless,moreworkisneeded,includingbuildinganewregistry,beforecreditscanbeissuedfromtheArticle6.4mechanismandthegapcanbeclosed.FOREWORDSUMMARYCHAPTER1CHAPTER2CHAPTER3CHAPTER4ANNEXES47STATEANDTRENDSOFCARBONPRICING2023WORLDBANK.ORG(xli)ReflectsbilateralagreementsthathavebeensignedbetweennationalgovernmentsrelatedtocooperationunderArticle6(asofApril1,2023).Theagreementshavedifferingobjectivesandlegalstatuses.ForJapan,bilateralagreementsareintendedtoestablishtheJointCreditingMechanism,whichincludesactivitiesthatpre-datetheParisAgreement.ForAustralia,itincludesAustralia’spartnershipswithFijiandPapuaNewGuineaannouncedundertheIndo-PacificCarbonOffsetsScheme.AustraliaFijiPapuaNewGuineaJapanPhilippinesIndiaUnitedArabEmiratesCambodiaMexicoPalauChileMyanmarSaudiArabiaThailandAzerbaijanGeorgiaMoldovaSenegalSriLankaTunisiaUzbekistanBangladeshCostaRicaEthiopiaIndonesiaKenyaLaoPDRMaldivesMongoliaVietnamSingaporeColombiaMoroccoPeruRepublicofKoreaSwedenGhanaDominicanRepublicNepalSwitzerlandDominicaVanuatuMalawiUkraineUruguayAcquiringcountriesYearoftheagreementHostcountries20212017202320142015202220132020FIGURE15ARTICLE6.2BILATERALAGREEMENTSASOFAPRIL1,2023xliThenumberofcountriesplanningtocooperateunderArticle6.2continuestogrow.EventhoughfurtherguidanceforArticle6.2isstillbeingdevelopedattheinternationallevel,countriesareneverthelesspushingforwardwithimplementation.In2022,manycountrieslookingtocooperateunderArticle6.2reachedbilateralagreements(seeFigure15).Thepastyearalsosawmemorandaofunderstanding(MoUs)signedbetweenUnitedArabEmirates–basedcompanyBlueCarbonwiththegovernmentsofLiberia,Tanzania,andZambia,149whiletheRepublicofKoreaiscurrentlyinnegotiationswithseveralcountriestoestablishcooperationagreements.150,xlAtCOP27,GhanaandVanuatu,inpartnershipwithSwitzerlandandtheUnitedNationsDevelopmentProgramme,presentedthefirstprojectstogenerateauthorizedemissionsreductionsunderArticle6.2,151andinFebruary2023,ThailandandSwitzerlandauthorizedthefirstArticle6programinAsia.152SingaporehasalsosignedanumberofMoUswithcreditingmechanismsinthecontextofsupplyingcreditsforitscarbontax.153TheincreasingnumberofagreementsreflectsthefactthatevermoregovernmentsconsiderArticle6animportanttooltoreachtheirNDCtargets.AstheseagreementsdevelopintofullcooperativeapproachesunderArticle6.2,itwillbecomeclearerhowcountriesareusingArticle6toenablegreaterNDCambition,whileatthesametimeaddressingthepossibleperverseincentivetolowerfutureambitioninordertomaximizethepotentialtogeneratecredits.154(xl)TheRepublicofKoreaispursuingdealswiththefollowingcountries:Bangladesh,Brazil,Chile,Colombia,India,Indonesia,Laos,Mongolia,Morocco,Myanmar,Peru,Philippines,SaudiArabia,SriLanka,Thailand,theUnitedArabEmirates,andUzbekistan.InadditiontotheseagreementsandthosereflectedinFigure16,agreementsbetweenSingaporeandGhanaandThailandareexpectedin2023,andSwitzerlandhassignedajointdeclarationwithChilein2022.ChileandNewZealandhavealsosignaledpossiblecooperationthroughthe“ClimateActionTeam”framework.FOREWORDSUMMARYCHAPTER1CHAPTER2CHAPTER3CHAPTER4ANNEXES48STATEANDTRENDSOFCARBONPRICING2023WORLDBANK.ORGGovernmentsarestartingtoimplementnationalframeworksandestablishinstitutionalstructurestosupporttheirparticipationinArticle6.Formanycountries,participatinginArticle6willinvolvemuchmorepreparationthantheKyotoProtocolrequired,wherehostcountryresponsibilitieswerelimited.UnderArticle6,participationmayinvolveadoptingnationallegislation,establishinginstitutionalarrangements,developinginfrastructuretorecordandmanageinformationonITMOs,andmeetingnewreportingobligations.155Somegovernmentshavebegundesigningtheirintendedpolicyandinstitutionalframeworks.Thesecanaddressissuessuchasidentifyingpriorityactivitytypes,designingnationalMRVapproaches,andsettingupprocessesforauthorizingandtransferringITMOs.Forinstance,Rwandaispreparingan“emissionstradingandreadinessframework”forArticle6,andinFebruary2023,Indiapublishedalistof13activitytypeseligibletobecreditedunderArticle6.2.156Overthelastyear,Ghanainparticularhasbeenattheforefrontofthesedevelopments,publishingacomprehensiveadministrativeframeworkforArticle6.2participation,underpinnedbyanewdraftlaw.157Countriesstillneedtomakeprogressonthenecessaryinfrastructure,suchasdatamanagementsystemsforMRVandtheregistrysystemstotrackapprovedprojects,issuedcredits,andauthorizations.xliiDevelopmentpartnersareexpandingtheirsupporttohostcountriestohelpbuildthesestructuresandprocesses.158Hostcountriesarecautiouswhenauthorizingemissionsreductions,notingthepotentialimpactsofcorrespondingadjustments.Inafewinstancesprojectdevelopershavealreadybeenabletosecurecommitmentsforcorrespondingadjustmentsfromhostcountries.159Itisnotalwaysclear,however,ifcountrieshavethenecessaryinstitutionalstructuresandinfrastructureinplacetofacilitateandtracktheirparticipationinthesetransactions,ortoassessthepotentialopportunitycostsofapplyingcorrespondingadjustments.Insomecases,applyingcorrespondingadjustmentscouldmakeitmoredifficultforacountrytomeetitsNDCtarget.xliiiManycountriesarethereforeexercisingcautionwhenconsideringauthorizingemissionreductions.GhanahassetclearconditionsunderwhichitwillauthorizeITMOs,whichcanonlybegeneratedfromtheconditionalcomponentofitsNDC.Furthermore,only99%oftheemissionsreductionsachievedwillbeauthorized,providingasafeguardagainsttheriskthatitwilltransfertoomanyITMOsandundermineeffortstomeetitsownNDC.Newcapacity-buildinginitiativesareaimingtoprovidecountrieswiththemeanstoassesshowbesttouseArticle6inawaythatsupportstheirNDCachievement,includingsupportdeliveredthroughtheWorldBank’sPartnershipforMarketImplementation.160TheimplicationsofevolvingguidanceunderArticle6forvoluntarycarboncreditdemandarestillunclear,buttherequirementsofdifferentbuyerscouldconverge.SuchconvergencemightalsobeinformedbytheguidanceandrequirementsspecifiedbyindependentinitiativeslikeICVCMandVCMI.Ultimately,itwillbeuptoindividualcompaniesandotherbuyerstodecideondesirablecreditattributes(e.g.,projecttype,vintage,quality,etc.)andwhethertheysourcecreditswithorwithoutacorrespondingadjustmenttomeetvoluntarycommitments.Assuch,thesizeofvoluntarydemandforcorrespondinglyadjustedcredits,asdistinctfrommitigationcontributionA6.4ERsorothercarboncreditsentirelyoutsideoftheArticle6framework,remainstobeseen.(xlii)Forexample,theWorldBankandtheEuropeanBankforReconstructionandDevelopmentoffersupportonestablishingdigitalizedMRVsystems,andtheUnitedNationsDevelopmentProgrammeisofferingadigitalplatformforArticle6.2thatfacilitatesthecooperativeapproachesbetweencountries;theWorldBankhasdevelopedanopen-sourceregistrythatcanbeadoptedasisoradaptedtocountries’needsandcircumstances.(xliii)Oneexampleofthisisifcorrespondingadjustmentswereappliedtoanactivitythatisamongthepoliciesandmeasuresneededtomeetacountry’sunconditionalNDCtarget.“Formanycountries,participatinginArticle6willinvolvemuchmorepreparationthantheKyotoProtocolrequired,wherehostcountryresponsibilitieswerelimited.”FOREWORDSUMMARYCHAPTER1CHAPTER2CHAPTER3CHAPTER4ANNEXES49STATEANDTRENDSOFCARBONPRICING2023WORLDBANK.ORG(xliv)IncludingtheDesigningArticle6PolicyApproachesprogram,theMobilizingArticle6TradingStructuresprogram,andtheSupportingPreparednessforArticle6Preparationprogram.(xlv)TheITMOsforDevelopmentprogramisacollaborationwiththeSwissFederalOfficefortheEnvironment.TheArticle6TransferReadinessProjectisincollaborationwiththeSwissStateSecretariatforEconomicAffairs.(xlvi)TheMutualLearningProgramforEnhancedTransparencyiscurrentlybeingimplementedinChile,Indonesia,Malaysia,Mongolia,andThailand.Recognizingthepotentialneedanddemandforsuchcorrespondinglyadjustedcredits,someorganizationsthatoperateindependentcreditingmechanisms,suchasGoldStandardandVerra,areinvestigatingand/ormakingchangestotheirprocessesandregistriessothatacredit’sauthorizationstatuscanbetransparentlyrecorded,althoughneitherareexplicitlyrequiringemissionreductionstohaveacorrespondingadjustmentstatusinordertoissuecredits.BroadparticipationinArticle6willrequireextensivecapacitybuilding.AlthoughthereiswidespreadinterestinArticle6,particularlyasavehicleforcrowdingincarbonfinancetomeetNDCtargets,manycountrieslacktheinformationandinstitutionalcapacitiesneededtoparticipateinthesemarkets.ThosewithlimitedexperienceofcarboncreditingundertheKyotoProtocolareataparticulardisadvantage.Severalinitiativesarenowlookingtosupportcountriestoprepareforparticipation.InstitutionsincludingtheGlobalGreenGrowthInstitute,xlivtheUnitedNationsDevelopmentProgramme,xlvandtheInstituteforGlobalEnvironmentStrategiesxlviareprovidingassistanceinavarietyofareas,suchasdesigningregulatoryframeworks;strengtheninginstitutionalcapacitiesforauthorization,transfer,andreporting;conductingcapacityneedsassessmentsforITMOtransferreadiness;andofferingpeer-to-peertrainingworkshops.Inanefforttoencouragecoordinationbetweenthevarioussupportprograms,atCOP27thegovernmentofJapanlaunchedtheArticle6ImplementationPartnershiptobuildonbestpracticesforArticle6participation.161“Inafewinstancesprojectdevelopershavealreadybeenabletosecurecommitmentsforcorrespondingadjustmentfromhostcountries.”FOREWORDSUMMARYCHAPTER1CHAPTER2CHAPTER3CHAPTER4ANNEXESChapter4Conclusion51STATEANDTRENDSOFCARBONPRICING2023WORLDBANK.ORGTheStateandTrendsReportfocusesondevelopmentsandtrendsindirectcarbonpricing.Itdoesthisbyengagingwithalmost100jurisdictionsglobally.Thethreedirectcarbonpricinginstrumentscoveredinthereportarecarbontaxes,emissionstradingsystems(ETSs),andcarboncreditingmechanisms.Whileallthreecanpromoteincentivestoreducegreenhousegasemissions,eachcanbetailoredtodeliverbroaderbenefits,suchasraisingrevenue,addressinglocalpollution,orattractinginternationalfinance.Asaresult,thereissignificantheterogeneityincarbonpricingpolicesacrossjurisdictions.Thetrendsidentifiedinthisyear’sreportshowthatmomentumbehindgrowingcoverageandprices,especiallyintheformofETSsandcarbontaxes,isstrong.Despiteeconomicturmoilandenergypriceshocks,governmentshavegenerallymaintainedand,insomecases,advanceddirectcarbonpricingpolicies.Thisincludes,forexample,IndonesialaunchingitsETSforcoal-firedpowerstations;Australiasignalingareturntocarbonpricingwithlegislationtotransformitsexistingpolicyintoarate-basedETS;andIndiapassinglegislationtoestablishadomesticcreditingmechanism,whichcouldsupportadomesticETSinthefuture.ItalsoincludessignificantactivityfromsubnationaljurisdictionsinMexicothatareincreasinglylookingtocarbonpricingasafiscalpolicy.Thisprogressondirectcarbonpricingcomesatatimewhengovernmentsaremanagingcompetingeconomic,social,andenvironmentalobjectives.Thesepoliticalchallengesarefurtherdemonstratedbytheincreasinguseoftargetedenergypricerelief,includingincountriesthathaveimplementeddirectcarbonpricing.ThisincludesadelayedincreaseinfuelexcisetaxesinMexicoandtargetedrelieftolow-incomehouseholdsintheRepublicofKorea.Whilesuchmeasurescanprovideimportantrelieftolow-incomehouseholds,theycanalsoreducethenetcarbonpriceincentiveonenergy.Carboncreditmarketscontinuedtoexpandtheirreachduring2022,withmoregovernmentsconsideringdomesticcreditingmechanisms,butissuancesandretirementsgloballyfellcomparedtothehighsof2021.Carboncreditpricetrendsalsoshowedsignificantvariances—whileover-the-countertransactionssawsomepriceincreases,exchange-tradedcreditsdeclined,particularlyinrelationtocreditsfromnature-basedcredits,whichsawaturbulentyear.Importantly,therewereearlysignsofprogressonArticle6operationalization,withnotonlyincreasedevidenceofbilateralagreements—suchasthroughthefirstauthorizedArticle6programinAsia(Thailand-Switzerland)—butalsoexamplesofestablishingimplementationframeworksandinfrastructuretofacilitateinternationalcooperation,notablyGhana’snewlypublishedadministrativeframeworkforArticle6.2participation.Thegrowinginterestincarboncreditingcomeswithincreasedmomentumtoaddressissuesthatunderminetheintegrityofcarboncreditmarkets:enhancingapproachestoensurecreditquality,promotingresponsibleuseofoffsetting,integratingnew“Despiteeconomicturmoilandenergypriceshocks,governmentshavegenerallymaintainedand,insomecases,advanceddirectcarbonpricingpolicies.”Carbonpricingisanimportantpolicytoolthatcanbeusedaspartofacomprehensivepolicypackagetodecarbonizeeconomies.Throughavarietyofpolicyinstruments,carbonpricingcreatesaneconomicincentivetosupportchangesininvestment,production,andconsumptiondecisions.Ashighlightedinthisreport,thereisnoone-size-fits-all—thechoiceofinstrument,thelevelofcoverage,andtheunderpinningpricecan,andshouldbe,tailoredtomeetdomesticcircumstances,priorities,andneeds.FOREWORDSUMMARYCHAPTER1CHAPTER2CHAPTER3CHAPTER4ANNEXES52STATEANDTRENDSOFCARBONPRICING2023WORLDBANK.ORGinfrastructureandtechnologiestosupportverificationofvoluntaryclaims,andprogressingrulesonArticle6.ThisincludesworkstreamsundertheUNFCCCtooperationalizeArticle6oftheParisAgreement.ItalsoincludeseffortsbytheIntegrityCouncilfortheVoluntaryCarbonMarketstoestablishguardrailstoincreasetransparencyandintegrityandbytheVoluntaryCarbonMarketIntegrityinitiativetoprovideguidancetocorporatesandhelpreducegreenwashing.Governmentscontinuedtopursueadirectcarbonpricinginstrumentswitharangeofdifferentpolicydesignspecifications,reflectingincreasinglydiversepolitical,institutional,legal,andadministrativeenvironments.GovernmentsalsocontinuedtooperateindirectcarbonpricingintheformoffossilfuelexcisetaxesandsubsidiesworthoverUSD1trillioneachyear,whichinfluencetheunderpinningincentiveeventhoughtheyarenotprimarilyadoptedasaclimatemitigationpolicy.Thishighlightsthegrowingcomplexityintrackingtrendsincarbonpricingandhighlightsanincreasedimportanceofunderstandinghowdevelopmentsindirectcarbonpricinginteractwithindirectcarbonpricingandwithotherpoliciestoachieveclimateandbroaderpolicyobjectives.Italsoemphasizestheimportanceofbridgingthedatagapstoensurethatpolicymakersandothershaveup-to-dateinformationonhowcarbonpricingisbeingimplemented.Thisincludeshavingaccesstocurrentinformationonthelevelandcoverageofindirectpriceslikefuelexcisetaxesandsubsidies.Bybetterintegratinganalysesofhowjurisdictionsapplydirectandindirectcarbonpricing,combinedwithmorein-depthinsightsandcritiquesofdifferentcarbonpricingdesignoptions,theWorldBankwillcontinuetoworkwithpartnercountriesandorganizationstoensurethatpolicymakers,private-sectoractorsandinvestors,andcivilsocietyactorshaveaccesstorobustandreliableevidencetoinformtheirdecision-making.“Governmentscontinuedtopursuedirectcarbonpricinginstrumentswitharangeofdifferentpolicydesignspecifications,reflectingincreasinglydiversepolitical,institutional,legal,andadministrativeenvironments”FOREWORDSUMMARYCHAPTER1CHAPTER2CHAPTER3CHAPTER4ANNEXESAnnexesA.AnnexDefinitionsB.AnnexMethodologiesandSourcesC.AnnexCarbonTaxandETSUpdateD.AnnexCreditingMechanismUpdates54STATEANDTRENDSOFCARBONPRICING2023WORLDBANK.ORGDirectCarbonPricingDirectcarbonpricinginstrumentsarepoliciesthatprovideaclearpricesignalwiththeaimofreducinggreenhousegas(GHG)emissions.Thesepoliciesareusuallydenominatedinunitofemissions—forexampledollarspermetrictonofcarbondioxideequivalent(tCO2e).Insomecases,pricesmaybeexpressedusinganothermetric(e.g.,dollarsperliteroffuel),buttheheadlinepriceiscalculatedbyapplyingacertainpriceperunitofemissionstotherelevantfuel.Eitheroftheseapproachescandeliverauniformpriceacrossemissionssources.Thecarbonpricingliabilitythereforeincreasesproportionallywiththevolumeofemissionsfromagivensource(i.e.,anemitterwouldfacedoublethetaxorcomplianceliabilityiftheiremissionsdoubled).Apolicydoesnotneedtobeuniformlyappliedacrossallsourcesinproportiontotheiremissionstobeconsidereda“directcarbonpricing”instrument;inreality,ofallthepoliciescurrentlyinoperationthatimposeapricesignalintendedtoreduceemissions,nonecoverandtreatallsectors,fuels,activities,and/orgasesequally.xlviiAcarbontaxisapolicyinstrumentthroughwhichagovernmentleviesafeeoncoveredentitiesfortheirGHGemissions,providingafinancialincentivetoreduceemissions.Underacarbontax,thegovernmentsetsthepriceofemissions(thetaxrate).Theresultingamountofemissionsreductionsisdeterminedbytheresponseoftheemittingentities.Inanemissionstradingsystem(ETS),thegovernmentplacesalimitontheamountofGHGemissionsfromcoveredentities.Entitiesmustsurrenderemissionunits(or“allowances”)tocovertheiremissionswithinacomplianceperiod.Eachemissionunitrepresentstherighttoemitacertainvolumeofemissions(typically1tCO2e)andcanbetradedbetweencoveredentitiesorsometimeswithothertraders.ThereareseveraldifferenttypesofETSs,including“cap-and-trade”and“rate-based”approaches,anddifferenttermsareusedfortheemissionunitswithindifferentsystems.Thecarbonpriceinthesesystemsisafunctionofsupplyanddemandforemissionunits.Undera“cap-and-trade”ETS,thegovernmentsetsacaponthetotalnetvolumeofGHGemissionsinoneormoresectorsoftheeconomy.Agovernmentthensells(sometimesthroughauctions)emissionallowancesand/ordistributesallowancesforfreetoentitiescoveredbythecap,withthetotalvolumeofallowancesissuedequaltotheemissionscap.ExamplesincludetheEuropeanUnion(EU)ETSandtheCaliforniaCap-and-TradeProgram.ThisAnnexsummarizesthekeytermsusedinthisreport.Differentorganizationsmayusedifferenttermsanddefinitionstorepresentsimilarconcepts.Therapidevolutionofcarbonpricingpolicies,inparticularthediversificationofdesigns,meansthatdefinitionswillnecessarilyevolveovertime.(xlvii)Inconsideringwhethertoincludepoliciesas“directcarbonpricing”inthisreport,considerationwasgiventowhetherthepolicyisintendedtoreduceemissionsandtheextenttowhichitappliesauniformtCO2epricetocoveredemissionsandimposesaliabilitythatisproportionaltoemissions.A.Annex.DefinitionsFOREWORDSUMMARYCHAPTER1CHAPTER2CHAPTER3CHAPTER4ANNEXES55STATEANDTRENDSOFCARBONPRICING2023WORLDBANK.ORGUndera“rate-based”tradingsystem,totalemissionsarenotfixed,butindividualentitiesorfacilitiesareinsteadallocatedaperformancebenchmark,typicallyexpressedasunitsofemissionsperunitsofoutput(i.e.,emissionsintensity),whichservesasalimitontheirnetemissions.Coveredentitiescan“earn”emissionunitsiftheyproducefeweremissionsthantheyareallocatedbythebenchmark.Thesecreditscanthenbetraded.Ifacoveredentity’semissionsarehigherthantheirbenchmarkallocation,theymustpurchaseandsurrenderemissioncreditsorothereligibleemissionunitstocovertheirsurplusemissionsrelativetothebaseline.Allocationsunderrate-basedsystemsarenotfixed,butratherdependonanentity’sleveloforcapacityforproduction.Examplesofrate-basedtradingsystemsincludeChina’sNationalETSandCanada’sOutputBasedPricingSystem.StabilizationmechanismsrefertoETSdesignelementsintendedtostabilizethecarbonpriceorthesupplyofallowances.InanETS,thecarbonpriceisnotusuallyfixedbyagovernmentbutinsteadisdeterminedbythesupplyofanddemandforeligibleemissionunits.However,someETSsincorporatepriceorsupplystabilizationmechanismstoensureambitionorreducepricevolatility.Thesecanincludeauctionreserveprices,topreventallowancesfrombeingsoldwhenpricesfallbelowafloorthreshold,orsafetyvalvesthatreleaseadditionalallowanceswhenpricesreachaceilingthreshold.Forexample,theEUETShasamarketstabilityreservethatbringsallowancesinandoutofthemarketdependingonthequantityofallowancesincirculation.InsomeETSs(e.g.,GermanyandAustria)thepriceofemissionunitsisfixed(usuallyforanintroductoryphase)bymakinganunlimitednumberofunitsavailableatapredeterminedprice.Others(e.g.,someCanadianprovinces)offeranalternativecompliancemechanismforpayingacarbontax,whichthenservesasaceilingprice.Carboncreditingmechanismreferstoasystemwheretradablecredits(representing1tCO2e)aregeneratedthroughvoluntaryemissionsreductionsactivities.Carboncreditscanrepresentemissionsreductionsachievedthrougheitheravoidance,forinstancebycapturingmethanefromlandfills,orremovalfromtheatmosphere,suchassequesteringcarbonthroughafforestationordirectlycapturingcarbonfromtheairandstoringit.CarboncreditingmechanismsoperatedifferentlyfromcarbontaxesandETSs—ratherthanrequiringbusinessestopayforemitting(i.e.,thepolluterpaysprinciple),businessesandotherorganizationscangeneratecarboncredits(andhencerevenue)bydemonstratingthatemissionshavebeenreducedorsequesteredrelativetoacounterfactualbaseline.UnlikecarbontaxesandETSs,carboncreditingmechanismsprovideasourceofsupply,butdonotcreateasourceofdemand.Forcarboncreditstohavevalue,creditingmechanismsrequireanexternalsourceofdemand.Thiscaninclude,forexample,regulatedemitterslookingtoreducetheirliabilitiesunderanETSorcarbontaxorcorporationslookingtomeettheirvoluntaryemissionsreductionsgoals.Bordercarbonadjustmentmechanisms(BCAs)referstoapolicyinstrumentwherebyagovernmentimposesacarbonpriceattheborderontheemissionsembodiedincertaincarbon-intensivegoodsthatareimportedfromotherjurisdictions.ThemainobjectiveofaBCAistoequalizethecarbonpriceleviedonthoseimportedgoodswiththecarbonpricechargedondomesticallyproducedgoods(throughacarbontaxoranETS)inordertoleveltheplayingfieldandpreventcarbonleakage.Inthissense,aBCAcanbeconsideredanextensionofadirectcarbonpricinginstrumentlikeacarbontaxoranETSforgoodsimportedfromotherjurisdictions.FOREWORDSUMMARYCHAPTER1CHAPTER2CHAPTER3CHAPTER4ANNEXES56STATEANDTRENDSOFCARBONPRICING2023WORLDBANK.ORGIndirectCarbonPricingIndirectcarbonpricingreferstoinstrumentsthatchangethepriceofproductsassociatedwithcarbonemissionsinwaysthatarenotdirectlyproportionaltotherelativeemissionsassociatedwiththoseproducts.Theseinstrumentsprovideacarbonpricesignal,eventhoughtheyareoften(primarily)adoptedforothersocioeconomicobjectives,suchasraisingrevenuesoraddressingairpollution.Examplesofindirectcarbonpricingincludefuelandcommoditytaxes,aswellasfossilfuelsubsidiesaffectingenergyconsumers.Forexample,fuelexcisetaxesapplyataxtothevolumeoffuels,suchasgasolineanddiesel(e.g.,dollarsperliter),whichplacesapriceonthecarbonemissionsfromthecombustionofthosefuels.However,thepriceisnotdeterminedinproportiontotherelativeemissionsresultingfromthecombustionofthosefuels.Conversely,fuelsubsidiesthatreducethepriceoffossilfuelscreatea“negative”indirectcarbonpricesignal,whichincentivizeshigherconsumptionandthereforeincreasescarbonemissions.Whilecarbonpricingpoliciescanbecategorizedasdirectorindirect,inpracticethedistinctionisnotalwaysobvious.ThemostdirectcarbonpricingpolicywouldapplyanequivalentandproportionalincentivetoreduceGHGemissionsacrossallsectorsandfuels.Indirectcarbonpricingpoliciesstillcreateapricesignalthatappliestofossilfuelsorproducts,buttheyarenotdesignedtoapplyaconsistentpriceacrossemissionsfromdifferentsources(e.g.,thepriceisnotlinkedtoactualGHGemissionsorthecarboncontentoffuels).ETSs,carbontaxes,andcarboncreditingaredirectcarbonpricingpolicies,butinreality,allexamplesofthesepoliciescurrentlyinoperationdifferacrosssectors,fuels,activities,and/orgases.Asaresult,thedistinctionbetweendirectandindirectcarbonpricesislessstarkinpractice,andcarbonpricingpoliciessitonaspectrumfromdirecttoindirect.FOREWORDSUMMARYCHAPTER1CHAPTER2CHAPTER3CHAPTER4ANNEXES57STATEANDTRENDSOFCARBONPRICING2023WORLDBANK.ORG1.Sourcesandtimelines:TheStateandTrendsofCarbonPricing2023reportdrawsonarangeofsources,includingofficialreporting(i.e.,governmentbudgetdocuments),relatedlegislationthatunderpinsthecarbonpricinginitiative,statementsfromgovernmentsandpublicauthorities,andinformationprovidedbyjurisdictions.DataandupdatesinthereportrepresentthesituationasofApril1,2023,unlessstatedotherwise.2.Emissions:2021greenhousegas(GHG)emissionsdataissourcedfromtheEDGAR(EmissionsDatabaseforGlobalAtmosphericResearch)CommunityGHGDatabase,version7(2022),whereavailable,orthemostrecentemissionsdatafromofficialsourcestobeconsistentacrossjurisdictions.•GHGemissionsvaluesforCanadianprovincesandterritoriesaretakenfromCanada’slatestnationalinventory.163•GHGemissionsvaluesforU.S.statesarebasedonofficialsubnationalGHGinventoryreportsfromeachoftherespectivestates,availablefromtheU.S.EnvironmentalProtectionAgencyGreenhouseGasInventoryDataExplorer.164•GHGemissionsvaluesforMexicanstatesarebasedontheWorldBank’semissionsdataandontheofficialreportsofeachoftherespectivestates,availableontheEmissionNationalRegistry.GHGemissionestimatesforChina’ssubnationaljurisdictionsarebasedonestimatesincludedintheInternationalCarbonActionPartnership’s(ICAP)StatusReport2023.165TheEDGARdatasetprovidesaggregatedataforcertaincountries,includingFranceandMonaco,SerbiaandMontenegro,SpainandAndorra,andSwitzerlandandLiechtenstein.Inthesecases,theGHGemissionsestimateforeachcountryweredeterminedbasedontherelativeemissionsofeachcountryinthemostrecentGHGemissionsinventoryreportedtotheUnitedNationsFrameworkConventiononClimateChange.3.Coverage:TheproportionofglobalGHGemissionscoveredbyadirectcarbonpriceiscalculatedbasedondirectcarbonpricinginstrumentsthatare“implemented.”Theestimateofemissionscoverageforeachcarbonpricinginstrumentisbasedwhereverpossibleonofficialgovernmentsourcesandconsidersthescope(sectors,fuels,and/orgases)ofpoliciesbutdoesnotnecessarilyfactorinallexemptionsand/oremissionsthresholdsorfreeallocations.4.Statusofcarbonpricinginstruments:Carbonpricinginstrumentsareconsidered“scheduledforimplementation”oncetheyhavebeenformallyadoptedthroughlegislationandhaveanofficial,plannedstartdate.Carbonpricinginstrumentsareconsidered“underconsideration”ifthegovernmenthasannounceditsintentiontoworktowardtheimplementationofacarbonpricinginitiativeandthishasbeenformallyconfirmedbyofficialgovernmentsources.5.Price:Carbonpricesarenominalpricesandaregenerallybasedontheexchange-tradedorauctionpricesonApril1,2023,orthemostrecentpricesavailable.Additionalpriceinformationisfurtherclarifiedhere:•AsMexicoistransitioningitsETSfromthepilotphase,with100%freeallocation,thereisnopriceinformationcurrentlyavailable.•MassachusettsETSpricedataisequaltotheauctionclearingpricefor2023unitsfromtheauctionheldonMarch15,2023.•CaliforniaandQuébeccap-and-tradepricedataarefromtheCaliforniaCarbonAllowanceVintage2023FuturesforAprilonMarch31,2023.B.Annex.MethodologiesandSourcesFOREWORDSUMMARYCHAPTER1CHAPTER2CHAPTER3CHAPTER4ANNEXES58STATEANDTRENDSOFCARBONPRICING2023WORLDBANK.ORG•RegionalGreenhouseGasInitiative(RGGI)pricedataaretheweightedaverageoftheallowancetransfertransactionpricesonMarch31,2023,fortheJanuary1,2021,toDecember31,2023,allowancecontrolperiod.PricesareconvertedfromUSD/shorttoncarbondioxideequivalent(CO2e)toUSD/metrictonCO2e.•UnitedKingdom(UK)ETSpricedataarefromtheUKAllowanceDailyFuturesPriceonMarch31,2023.•NewZealandETSpriceisthespotpriceonMarch31,2023.6.Revenue:RevenueisfortheperiodJanuary1toDecember31,2022.ForjurisdictionswiththeirfiscalyearstartingonApril1,therevenuebetweenJanuary1andDecember31,2022,isestimatedbytheadditionofonequarteroftheApril1,2021,toApril1,2022,revenueandthreequartersoftheApril1,2022,toApril1,2023,revenueestimate.Where2022revenuewasnotavailablebeforethereportwasfinalized,officialrevenueforecastsfor2022areused,orrevenueisestimatedbasedonrevenuecollectedin2021.7.Exchangerateconversions:PriceandrevenuedataareconvertedfromnationalcurrencytoUSdollarsusingtheInternationalMonetaryFundexchangeratesonApril1,2023.8.2022ETSpricedevelopments:PricedevelopmentdataaretakenfromtheICAP’sAllowancePriceExplorer,whichhasup-to-dateinformationonallowancepricesinETSs.Thefollowingsourceswerealsodrawnupon:theCaliforniaAirResourcesBoardwebsite,spotpricedataprovidedbytheEuropeanEnergyExchangegroupfortheEUETS,thewebsiteoftheMinistryfortheFightAgainstClimateChangeofQuébec,theRGGIwebsite,andtheIntercontinentalExchangeandtheSwissEmissionsRegistry.9.Creditingdata:CarboncreditissuanceandretirementdataarefortheperiodJanuary1toDecember31,2022.DataareeithersourcedfrompubliclyavailablecarboncreditingmechanismregistriesorobtainedbyEcosystemMarketplacedirectlyfromtheorganizationsthatoperateindependentcreditingmechanisms.Dataonissuances,retirements,andprojectregistrationsbyprojectcategoryforindependentandinternationalcreditingmechanismshavebeenprovidedbyForestTrends’nonprofitinitiativeEcosystemMarketplaceandcoverthefollowingcreditingmechanisms:AmericanCarbonRegistry,CaliforniaAirResourcesBoard,CityForestCredits,CleanDevelopmentMechanism,ClimateActionReserve,GlobalCarbonCouncil,GoldStandard,PlanVivo,UKPeatlandCode,UKWoodlandCarbonCode,andVerifiedCarbonStandard.Datafordomesticcreditingmechanisms(includingissuanceandpricedata)wereprovidedbyjurisdictiongovernmentsforthefollowingcreditingmechanisms:AlbertaEmissionOffsetProgram,AustraliaEmissionsReductionFund,BritishColumbiaOffsetProgram,CaliforniaComplianceOffsetProgram,ColombiaCreditingMechanism,J-CreditScheme,RepublicofKoreaOffsetCreditingMechanism,SouthAfricaCreditingMechanism,SwitzerlandCO2AttestationsCreditingMechanism,andTokyoCap-and-TradeProgram.Pricedataforexchange-tradedtransactionsareprovidedbyS&PGlobalPlattsandreflectthemostcompetitivelypricedunderlyingcontractthatmeetsthefivecarboncreditpriceassessments’specifications.Pricedataonover-the-countertransactionsareprovidedbyEcosystemMarketplaceandreflectpriceandtransactionvolumedataconfidentiallydisclosedtoEcosystemMarketplacebyacontrolgroupof29organizationsthathaddisclosedtradesforboth2021and2022atthetimethisreportwaswritten.FOREWORDSUMMARYCHAPTER1CHAPTER2CHAPTER3CHAPTER4ANNEXES59STATEANDTRENDSOFCARBONPRICING2023WORLDBANK.ORGAlbaniaAlbaniaadopteditsNationalEnergyandClimatePlanin2022,makingclearthegovernment’sintentiontoprogresspoliciesandmeasuresidentifiedinthatplan,includinganETS.ArgentinaTheArgentiniancarbontaxrateissubjecttoquarterlyupdates.However,thequarterlytaxupdateforthethirdandfourthtrimestersof2021andallof2022werepostponeduntilApril1,2023,forgasolineandgasoil.AustraliaLegislationtoreformtheSafeguardMechanismwaspassedinMarch2023,withchangestocommencefromJuly1,2023.TheSafeguardMechanismassignsemissionsbaselinesforover200largefacilities.Facilitiesemittingabovetheirbaselinemustoffsetexcessemissions.Thereformswillreduceemissionsbaselinesforcoveredfacilitiesandallowtheissuanceofcreditstofacilitiesthatoverachieveontheirbaseline.ThisineffectwillturntheSafeguardMechanismintoarate-basedETS.AustriaAustria’snationalETSstartedoperatingonOctober1,2022.ThesystemwasoriginallyscheduledtolaunchinJuly2022butwassuspendedforthreemonthsaspartoftheenergypricereliefplanoftheAustriangovernment.ThenationalETScoversmainlyheatingandtransportationemissionsnotcoveredundertheEUETS.Between2022and2025,thesystemwilloperatewithanannuallyincreasingfixedprice(startingatEUR30USD32.6/metrictonofcarbondioxideequivalent(tCO2e)in2022anduptoEUR55USD59.7/tCO2ein2025).Amarketphasewillfollowfrom2026,subjecttoareviewin2024andconsideringdevelopmentsontheEUlevel.Thesystemistobesupersededin2027bytheimplementationoftheEU’sETSIIforbuildingsandroadtransport.BosniaandHerzegovinaIn2022,thegovernmentpreparedaroadmapforimplementationofanationalETSwithsupportfromtheenergycommunity.BrazilSeveralparallelandongoingprocessesaremovingtowardtheimplementationofanETSinBrazil.InMay2022,thegovernmentpublishedDecree11,075,whichestablishedtheNationalGreenhouseGasEmissionsReductionSystem(Sinare).ThedecreerequirestheMinistriesofEnvironmentandEconomytodevelopsectoralclimatechangemitigationplans,includingconcreteemissiontargets,andestablishesaroadmapforthisprocess.Itfurthercallsforestablishing“integrationmechanismswiththeinternationallyregulatedmarket.”Theyear2022alsosawtheBrazilianCongressdiscussanumberoflegislativeproposalstoestablishanETSinthecountry.ThisincludesbillsthatwereC.Annex.CarbonTaxandETSUpdatesThissectionincludesonlyjurisdictionsthatsawsignificantdevelopmentsincarbontaxesandemissionstradingsystems(ETSs)in2022orearly2023(beforeApril1).Updatesaregroupedbycountry,withtheexceptionoftheEuropeanUnion(EU),whichhasitsownentryforregional-levelpolicies.FormoredetailedinformationonallcarbontaxesandETSs,pleaserefertotheCarbonPricingDashboard,aninteractiveonlineplatformthatprovidesup-to-dateinformationonexistingandemergingcarbonpricinginstrumentsaroundtheworld.FOREWORDSUMMARYCHAPTER1CHAPTER2CHAPTER3CHAPTER4ANNEXES60STATEANDTRENDSOFCARBONPRICING2023WORLDBANK.ORGTABLEC.1CARBONPRICINGDEVELOPMENTSINSELECTEDCANADIANPROVINCESANDTERRITORIESJURISDICTIONRECENTDEVELOPMENTSAlbertaAlberta’sTechnologyInnovationandEmissionsReduction(TIER)RegulationwasamendedinDecember2022,withchangestakingeffectonJanuary1,2023.Updatesincludedsettingthecarbonpriceinlinewiththefederalbenchmark;tighteningoutput-basedbenchmarksby2%annuallyfrom2023to2030andalsoincreasingthetighteningratesoftheoilsandssectorsby4%in2029and2030;reducingtheopt-inthresholdto2,000tonneperyear;increasingthelimitsonemissionperformanceandoffsetsusagefrom60%in2023by10%annuallyuntilitreaches90%in2026;reducingthecreditexpirytofiveyears;establishingsequestrationcreditsandcapturerecognitiontonnestosupportcarboncapture,utilization,andstorageinvestments;andchangingthebiomassemissionstreatmenttosupportbioenergywithcarboncaptureandstorage.InNovember2022,thefederalgovernmentconfirmedtheAlbertaTIERregulatorysystemcontinuestomeetthefederalbenchmarkrequirements.BritishColumbiaInNovember2022,thefederalgovernmentannouncedthatBritishColumbiawillcontinuetoimplementitsowncarbonpricingsystem.ManitobaInNovember2022,thefederalgovernmentannouncedthatthefederaloutput-basedpricingsystem(OBPS)forindustryandthefederalfuelchargewillcontinuetoapplyinManitoba.NewBrunswickInNovember2022,thefederalgovernmentannouncedthattheNewBrunswicksystemcontinuestomeetthefederalgovernment’sminimumrequirements.NewfoundlandandLabradorInNovember2022,thefederalgovernmentannouncedthattheperformancestandardssystem(PSS)thatappliestolargefacilitiesinNewfoundlandandLabradorcontinuestomeetthefederalbenchmarkstringencyrequirements.Accordingly,theprovincessystemwillcontinuetoapplytolargeindustry.NorthwestTerritoriesOnOctober31,2022,thegovernmentannouncedchangestoitscarbontaxsystemtoalignwithnewfederalgovernmentrequirements.Thechangeincludesupdatestothecarbontaxratesandchangestoaddresscostoflivingimpacts,includingremovingtheat-sourcerebateforheatingfuel.FromApril1,2023,thecarbonpricewillincreaseinlinewiththefederalbenchmark.InNovember2022,thefederalgovernmentannouncedthattheNorthwestTerritorieshaveproposedafullsystemthatmeetstheupdatedfederalbenchmark.NovaScotiaInNovember2022thefederalgovernmentapprovedthereplacementoftheprovince’scap-and-tradesystemwithanOBPSfromJanuary1,2023.Thecap-and-tradesystemwillexpireafterthecompliancedeadlineinDecember2023,withtwomoreauctionsscheduledduringtheyeartoallowentitiestopurchaseallowancesfortheirverified2022emissions.OntarioInNovember2022,thefederalgovernmentannouncedthatOntario’scarbonpricingsystemforindustrymeetsthefederalbenchmarkrequirements.InDecember2022,theOntariogovernmentamendedtheEmissionsPerformanceStandardsprogramtomeetthefederalbenchmark.Thisincludesaligningwiththefederalminimumcarbonprice,strengtheningtheperformancestandardforelectricitygeneration,andadjustingthestringencyfactorsandemissionstandards.PrinceEdwardIslandInNovember2022,thefederalgovernmentannouncedthatthefederalfuelchargewillapplyinPrinceEdwardIslandfromJuly1,2023,astheproposedsystemdidnotmeetthebenchmarkcriteria.QuébecInSeptember2022,Québecadoptedanewapproachforfreeallocation,whichwillapplystartingin2024.Withoutreform,freelyallocatedallowanceswereforecasttorepresentanincreasingshareofthetotalcapasindustrialoutputgrew.Itisexpectedthatthenewapproachwillleadtoareductioninfreeallocationof2.9millionallowancesbetween2024and2030.SaskatchewanInNovember2022,thefederalgovernmentannouncedthattheSaskatchewanOBPSprogrammeetsthefederalbenchmarkrequirements.Thisincludestheadditionoftheelectricitygenerationandnaturalgastransmissionpipelinesectors.AllcoveredindustrialemittersinSaskatchewanwilltransfertotheprovincialprogramfromJanuary1,2023.IntheOBPS2023(theregulationsinforcesinceJanuary1,2023),offsetshavebeenremovedasacompliancemechanism.presentedinboththeChamberofDeputiesandtheSenate.WhiletherearedifferencesinthedetailsincludedineachoftheproposedBills,commonelementssuggestemergingthemes,suchastheestablishmentofagreenhousegas(GHG)emissionsmonitoring,reporting,andverification(MRV)systemandacentralizedregistryforBrazilianGHGmitigationprojectsandtheirresultingcarboncredits,whichcouldpotentiallybeusedforcompliancepurposesasoffsetsunderanETS.CanadaAllCanadianprovincesandterritorieshadtohandinproposalsforcarbonpricingsystemsforthe2023—2030period.ThesemustmeetthestrengthenedfederalbenchmarkcriteriaofCAD65(USD48)/tCO2ein2023,increasingbyCAD15(USD11)eachyeartoCAD170(USD126)/tCO2ein2030.InNovember2022,theCanadiangovernmentannouncedwhichprovincialsystemsmetthefederalbenchmarkrequirements.Asaresult,thefederalfuelchargewillexpandtoapplyinNewfoundlandandLabrador,NovaScotia,andPrinceEdwardIslandbeginningJuly1,2023.ChileChilehashadacarbontaxinplacesince2017.AregulationfortheoffsetssystemispendingapprovalbytheComptrollerGeneral’soffice.Thegovernmentiscurrentlyconsideringapotentialincreasetothetaxrate,aswellasanewwayofapplyingthecarbontaxtotheelectricitysector.FOREWORDSUMMARYCHAPTER1CHAPTER2CHAPTER3CHAPTER4ANNEXES61STATEANDTRENDSOFCARBONPRICING2023WORLDBANK.ORGTABLEC.2DEVELOPMENTSINCHINA’SSUBNATIONALPILOTSThe2022—2026EnergyAgendapublishedbythegovernmentinAugust2022stipulatesthatapilotETSprojectfortheenergysectorwillbedevelopedtoevaluatetheroleofthisinstrumentinachievingemissionsreductionsandajusttransitioninacost-effectivemanner.ChinaWiththeexperiencefromthefirstcomplianceperiodofthenationalETS,theMinistryofEcologyandEnvironmentupdatedMRVguidelinesinMarch2022withtheaimofimprovingdataquality.InNovember2022,theministryreleaseddraftallocationplansfor2021and2022forpublicconsultation,significantlytighteningbenchmarkvaluesforcoal-firedpowerplants.ColombiaInAugust2022,theColombianMinistryofFinanceandPublicCredit(Minhacienda)submittedtoCongressadrafttaxpackagetoreformtheexistingcarbontax.TheproposalwasapprovedinDecember(Law2277-2022).ThereformsincreasedthecarbontaxratetoCOP20,500(USD4.43)/tCO2eforallpetroleumderivativesandalltypesoffossilgasusedforcombustion,startingJanuary1,2023.Thetaxrateappliedforcoalwillbe25%ofthetotalvaluein2025and100%ofthefulltaxin2028.Thereformalsoexpandsthetaxablebasetoincludethedomesticsale,import,andconsumptionofthermalcoal,excludingcoalexportsandcoalusedincokingplants,withagradualimplementationperioduntil2028.Thepercentageofallowableoffsetsincludedinthecarbontaxreformis50%.DenmarkThegovernmenthasreachedanagreementwithseveralotherpartiestointroduceanewCO2taxoncompaniesfrom2025.ThetaxwouldapplytocompanieswithinandoutsideoftheEUETSbutatdifferentrates:DKK350(USD51)/tCO2in2025risingtoDKK750(USD109.48)/tCO2in2030forcompaniesoutsidetheEUETS,DKK75(USD10.94)/tCO2in2025risingtoDKK375(USD54.74)/tCO2forEUETScompanies,orDKK100(USD14.6)/tCO2in2025risingtoDKK125(USD18.24)/tCO2forcompanieswithinmineralogicalprocesses.TheagreementalsointroducesafloorpricefortheEUETS.EuropeanUnionInDecember2022,theEUParliamentandCouncilreachedanagreementforamajorreformoftheEUETS,strengtheningitsambitioninordertoachievetheEU’s55%emissionsreductiontargetfor2030.ThereformincludesatightercapfortheexistingEUETSforelectricity,industry,andaviationandaphase-inofthemaritimesectorfrom2024onward.Aphase-outoffreeallocationofallowancesfortheindustrialsectorwillbeaccompaniedbyaphase-inoftheEUCarbonBorderAdjustmentMechanismbeginningin2026.Moreover,theEUdecidedtointroducean“EUETS2”forbuildings,roadtransport,andprocessheatinindustryin2027or,ifenergypricesremainhigh,in2028.GermanyInresponsetotheenergycrisis,theGermangovernmentpushedbackbyoneyeartheplannedEUR5.00(USD5.43)JURISDICTIONRECENTDEVELOPMENTSBeijingInNovember2022,thefirstauctionwasheldsince2013,generatingatotalrevenueofCNY113million(USD16.4million).ChongqingInMarch2022,theChongqingEcologyandEnvironmentBureau(EEB)issuedtheManagementRules,whichregulatetheissuanceofoffsetcreditsandthemanagementoftherespectiveplatform.FujianTheFujianETSachieved100%compliancefor2021.TheFujianprovincialEEBreleasedthe2021allocationplanforpublicconsultationinNovember2022.GuangdongTheGuangdongETSachieved99.4%compliancefor2021.InDecember,theGuangdongEEBreleasedthe2022allocationplan.ThethresholdforentitiesregulatedundertheETSwasloweredfrom20,000tCO2/yearorenergyconsumptionof10,000metrictonsofcoalequivalent(tce)/yearto10,000tCO2/yearorenergyconsumptionof5,000tce/year.Twenty-twomoreentitieswerecoveredin2022.HubeiTwoauctionswereheldin2022,whichraisedrevenuesofCNY68.22million(USD9.9million)andCNY18.47million(USD2.68million).ShanghaiTheShanghaiEEBreleasedthe2021allocationplaninFebruary2022.Nosignificantchangeswereimplementedtotheallocationplanfromthepreviousyear,buttheemissionsfactorsofpowerandheatconsumptionwerereduced,reflectingemissionsreductionsalreadyachieved.AuctionswereheldinSeptemberandDecember2022,generatingatotalrevenueofCNY140.69million(USD20.47million).ShenzhenInAugust2022,theChinaEmissionExchange(Shenzhen)helditssecondauctionafterthefirstonein2014,generatingatotalrevenueofCNY25.26million(USD3.67million).TianjinTheTianjinETSachieved100%compliancefor2021.InJuly2022,TianjinpublishedadraftroadmaptoestablishaTanPuHuisystem,whichisalocalvoluntaryreductionschemetoencouragesmall-scaleemissionsreductionprojectsandpersonallow-carbonbehavior.CreditsfromthesystemcouldbeusedforcomplianceundertheTianjinETS.Theplanisexpectedtostartin2025.FOREWORDSUMMARYCHAPTER1CHAPTER2CHAPTER3CHAPTER4ANNEXES62STATEANDTRENDSOFCARBONPRICING2023WORLDBANK.ORGincreaseofthefixedCO2priceofitsnationalETS.Thefollow-upincreases,previouslyplannedfor2024and2025,willalsobepostponedbyoneyear.TheupdatedtrajectorywillseeallowancessoldatEUR30(USD32.6)in2023,EUR35(USD38)in2024,andEUR45(USD48.9)in2025.Thedelaywillnotaffectthestartoftheauctioningphasein2026.Theextensionofthesystemtocoverwasteincineration,previouslyalsoscheduledfor2023,wasalsopostponedtoJanuary1,2024.GHGemissionsfromcoalcombustionbyentitiesnotalreadycoveredundertheEUETShavebeenincludedintothesystem,asplannedsincethestartof2023.IcelandTheIcelandiccarbontaxwasincreasedonJanuary1,2023,tomatchtheexpectedinflationrate(7.7%).IndonesiaOnFebruary22,2023,theMinistryofEnergyandMineralResources(MEMR)announcedthelaunchofamandatory,intensity-basedETSforthepowersector.Thesystemwillinitiallycover99coal-firedpowerplantsthataccountfor81.4%ofthecountry’snationalpowergenerationcapacity.MEMRexpectstoseeareductionof500,000tCO2inthesectorthroughtheETSoverthecourseof2023.JapanInFebruary2022,thegovernmentannouncedtheupcomingGreenTransformation(GX)League,abaseline-and-creditsystemforcompaniesexpectedtobecomefullyoperationalinApril2023.ThiswillbuilduponexistingcarbontradingsystemssuchastheJointCreditingMechanismandJ-Creditscheme.AlthoughparticipationintheGXLeagueisvoluntary,complianceonceformallyaparticipantismandatory.InOctober2022,thegovernmenttaskedtheMinistryofEconomy,TradeandIndustrywithdevelopingmorespecificplanstoscaleup“growth-oriented”carbonpricingfrom2026bycombiningcarbontaxationwithanETS.InFebruary2023,Japan’scabinetapprovedthebasicGXplan,a10-yearroadmapthatincludesinitialarrangementsforamandatorynationalETSfrom2026.KazakhstanAnewNationalAllocationPlanfor2022—2025wasapprovedinJuly2022,establishingacapof163.7MtCO2for2023.LiechtensteinTheLiechtensteincarbontaxwasduetoberevised,inlinewithareviewoftheequivalenttaxinSwitzerland.However,theproposednewframeworkfortheSwisscarbontaxwasunsuccessful.Therefore,Liechtensteinmadeadjustments,includingtoallowforemissionreductioncommitmentsoutto2024(previouslytheyonlyappliedupuntil2020)andenablethegovernmenttodeterminequalitycriteriaforinternationaloffsets(withreferencetoArticle6oftheParisAgreement).MalaysiaTheGovernmentofMalaysiahascommencedpreliminaryworkin2023toinvestigatethepotentialforacarbontaxandplanstodevelopapolicyanddesignframeworkforadomesticETS.Inaddition,theMalaysianstockexchangelaunchedtheBursaCarbonExchange,theworld’sfirstshariah-compliantVoluntaryCarbonMarketplatform,inDecember2022.TheBursaCarbonExchangecompletedthecountry’sfirstcarboncreditauctiononMarch16,2023.FOREWORDSUMMARYCHAPTER1CHAPTER2CHAPTER3CHAPTER4ANNEXES63STATEANDTRENDSOFCARBONPRICING2023WORLDBANK.ORGMexicoInJanuary2023,theoperationalphaseoftheMexicanETSbegan.TheMinistryofEnvironmentandNaturalResourcesisexpectedtopublishtheregulationsoftheoperationalphaseoftheETSinthefirsthalfof2023.MoldovaInNovember2022,theMoldovangovernmentreleaseditsconceptEnergyStrategyto2050.TheconceptincludesplanstotransposeandimplementtheEUETSdomestically.MontenegroTheoperationoftheMontenegroETSwasnegativelyaffectedbyseveralchangesofgovernmentthroughout2022,whichcausedmajordelaysintheadoptionoftheannualallocationplan.Thegovernmentsetupaworkinggroupinmid-2022toreviewthecountry’sclimatelegislation,includingtheETS.ThisworkisstillongoingasofJanuary2023,withtheadoptionoftherevisedETSDecreeandClimateLawexpectedbyApril2023.NetherlandsTheminimumcarbonpriceforelectricityenteredintoforceonApril5,2022.TheminimumcarbonpriceforindustrybeganonJanuary1,2023,andisintendedtoencourageindustrialenterprisestomakeextracutsincarbonemissions,coveringalltheiremissions.GiventhattheEUETSpriceremainedwellabovethelevelofthefloorprices,thepricefloorswerenotactivated.AttherequestoftheSenate,therewillbeaninterimevaluationoftheplannedtrajectoryfortheminimumpriceforelectricityinlightoftherecentincreaseintheEUETSprice.ThiswasconfirmedbyalettertotheSenateonMarch14,2022.NewZealandAfterthemajorreformsofthepreviousyears,in2022theNewZealandgovernmentcontinuedtomakeincrementalimprovementstotheoperationoftheNZETS.Changescomingintoeffectfortheforestrysectorin2023includeashifttoaverageaccountingandanew“permanentforest”category.Decisionswerealsotakentotightentheeligibilityandaccountingrulesforindustrialallocation.Consultationscontinueonanimprovedmarketgovernanceframework,aswellasacarbonpricingmechanismforbiologicalemissionsfromagriculture.Thegovernmentalsoannouncedplansforanagriculturalemissionspricingsystem.ThegovernmentreceivedadvicefromboththeHeWakaEkeNoa—PrimarySectorClimateActionPartnershipandtheClimateChangeCommissiononagriculturalemissionspricing.Publicconsultationonthegovernment’sproposedagriculturalemissionspricingsystemranforsixweeksbetweenOctober11andNovember18,2022.Subsequently,thegovernmentpublishedareportinDecember2022settingoutpolicydirectiononagriculturalemissionspricing.Toensureasystemisinplaceby2025,thecabinetwillmakefinalpolicydecisionsontheagriculturalemissionspricingsysteminearly2023.Thegovernmentwillthenpreparelegislationtoimplementthissystem.NigeriaInAugust2022,theNigerianMinisteroftheEnvironmentannouncedthatthecountryhasstartedactivitiestowardestablishinganationalETS.TheNationalCouncilforClimateChange,establishedinNovember2021,isresponsiblefordevelopingthesystem.Keydesignelementssuchasthenature,timeline,andsectoralscoperemaintobedecided.Theproposalwillgothroughstakeholderengagementbeforedecisionsaremadeonfeaturessuchastheallocationframework.TABLEC.3CARBONPRICINGDEVELOPMENTSINSELECTEDMEXICANSTATESJURISDICTIONRECENTDEVELOPMENTSDurangoCarbontaxlegislationwasapprovedin2022.ThecarbontaxappliestodirectandindirectemissionsofCO2,methane,andnitrousoxidetoallstationarysourceswithinthestate.ThecarbontaxwasintroducedwithafixedrateofMXN179(USD9.9)/tCO2e.GuanajuatoCarbontaxlegislationwasapprovedin2022.ThecarbontaxappliestodirectandindirectemissionsofCO2,methane,nitrousoxide,perfluorocarbons,hydrofluorocarbons,andsulfurhexafluoridefromGHG-emittingfacilitiesorstationarysources.Commencementofthecarbontaxhasbeenpostponed,anditwillnowcommenceinJune2023.TheinitialcarbontaxratewillbeMXN250(USD13.8)/tCO2eandwillbeupdatedannually.StateofMexicoThecarbontaxenteredintoforceinApril2022,witharateofMXN43(USD2.37)/tCO2e.QuerétaroThecarbontaxenteredintoforceinJanuary2022.Theincreaseofthedaily“UnitofMeasurementandUpdate”(UMA),increasedthecarbontaxratebyMXN42.11(USD2.32)toMXN580.94(USD32.07)in2023.TamaulipasCarbontaxlegislationwasapprovedin2020,andwhilethetaxofficiallycommencedin2022,itwasrepealedinJanuary2023andisnotcurrentlyoperational.YucatánThecarbontaxenteredintoforcein2022.TheincreaseofthedailyUMAincreasedthecarbontaxratebyapproximatelyMXN20.31(USD1.12)toMXN280.7(USD15.46)in2023.FOREWORDSUMMARYCHAPTER1CHAPTER2CHAPTER3CHAPTER4ANNEXES64STATEANDTRENDSOFCARBONPRICING2023WORLDBANK.ORGNorthMacedoniaIn2022,MacedoniaadopteditsNationalEnergyandClimatePlanandhasbeenactivelydevelopingits“LawonClimateChange,”whichwouldestablishthebasisforcarbonpricing(subjecttofurthersubordinatelegislation).NorwayNorwayincreasedtheratesofitscarbontaxby28%formostfossilfuelsin2022and21%in2023.NorwayalsointroducedataxonwasteincinerationattherateofNOK192(USD18.32)/tCO2,aswellasonnaturalgasandliquifiedpetroleumgasusedingreenhouses,whichwerepreviouslyexemptfromthecarbontax,attherateofNOK77(USD7.34)/tCO2in2022.Thetaxrateonwasteincinerationwasincreasedanddifferentiatedin2023.PortugalThecarbontaxratewasfrozenat2021levelsinresponsetoextremelyhighenergyprices.Thepricechangesplannedforthestartof2022weredelayedthroughtheendofMarch2023.RepublicofKoreaInNovember2022,thegovernmentannouncedseveralnear-termchangestotheKoreanETS.Theseincludeincreasingincentivestoreduceemissionsandfacilitatelow-carboninvestmentbyissuingmorefreeallowancestothemostefficientcoveredentities;encouragingtradingandmitigatingpricevolatilitybyopeninguptheETStomorefinancialfirmsandincreasingtheallowanceholdinglimit;facilitatingtheconversionofinternationaloffsetcreditstoKoreanCreditUnits;strengtheningMRV;andincreasingsupportforsmallbusinessesandnewentrants.Sakhalin(Russia)InMarch2022,theStateDumaapproveda“FederalLawonConductinganExperimenttoLimitGHGEmissionsinSelectedFederalStatesoftheRussianFederation,”introducingmandatoryemissionsreportingandverificationrequirementsforregulatedentitiesandobligingthemtocomplywiththeallocatedemissionsallowances.Thelawalsosetsalegalbasisfor“allowancescirculation”betweenentities.TheSakhalinpilotwasmandatedtolaunchonSeptember1,2022,asamandatoryGHGregulationplan,butthestarthasbeendelayedpendingcapsettingandallowanceallocationprocesses.ThescopeoftheexperimentcanbeextendedtootherfederalstatesoftheRussianFederationbyintroducingchangestotherespectivefederallaw.SloveniaTheSloveniancarbontaxwasabolishedasofJuly2022duetohighenergyprices.Sofar,thegovernmenthasmadenodecisiontoreintroducethetax.SpainArecentlawhasmodifiedthescopeofthetax,sopreviouslyitwasappliedonthesellingordeliveryoffluorinatedgasestothefinalcustomer,whereasnowthislawtaxesfluorinatemanufacturing,importing,andintra-EUacquisition.CataloniaTheVice-presidencyofEconomyandFinanceofCataloniastartedapublicconsultationprocessonMarch1,2022.ThepublicconsultationaimstoguaranteetheapplicabilityofthetaxongreenhouseemissionsgeneratedbyeconomicactivitiesandtoachievetheenergytransitionobjectivesestablishedbyLaw16/2017onclimatechange.FOREWORDSUMMARYCHAPTER1CHAPTER2CHAPTER3CHAPTER4ANNEXES65STATEANDTRENDSOFCARBONPRICING2023WORLDBANK.ORGSwedenAwaiveronthecarbontaxforfuelforcombinedheatandpoweraswellasheatproducedbycompaniesparticipatingintheEUETScameintoforceonJanuary1,2023.Theseoperatorshavepreviouslybeenexemptedfromthecarbontaxforelectricityproduction,butfuelusedforheatwascoveredbyboththeEUETSandcarbontax.Atemporarywaiveronthecarbontaxforprofessionaluseofdieselfuelinagriculture,forestry,andsomeactivitiestakingplaceinlakesandthesea(suchasfishfarms)hasbeeninplacesinceJanuary1,2022,andwillremainatleastuntilJune30,2023.Thetaxratewasfrozenat2021levelsfor2022inresponsetohighenergyprices.SwitzerlandIn2022SwitzerlandintroducedamarketstabilitymechanismtoitsETSwhere,duetoalargenumberofallowancesincirculation,theauctionvolumewasreducedby50%.AfterarevisionoftheCO2ActfailedtopassareferenduminJune2021,theSwissParliamentextendedthecurrentCO2Actto2024.InNovember2022,theSwissFederalCouncilpublishedanewproposalforarevisionoftheCO2Actthatcoverstheperiodfrom2025to2030andhenceSwitzerland’s50%emissionreductiontargetfor2030.ThelawiscurrentlybeingdebatedinParliament.Taiwan,ChinaTaiwan’sLegislativeYuanpassedanamendmentoftheclimatebill,renamedthe“ClimateChangeResponseAct,”onJanuary10,2023,anditenteredintoforceonFebruary15,2023.Theactestablishesacarbonfeesystemforlargeemittersandsetsagoalofreachingnet-zeroemissionsby2050.Thecarbonfeewillbeleviedonmajoremitters,andthefeerateandrelatedsubsidiarymeasureswillbeformulatedinfurtherregulation.ThecurrentplanistoimplementthecarbonfeebeforetheETSisconsideredinthefuture.ThailandTheThailandVoluntaryETSpilotprojectwasextendedtotheEasternEconomicCorridorarea,akeyindustrialregionofThailand.Earlyin2022,thegovernmentalsopublishedrulesandguidelinesforcarboncredittrading,whichwerefollowedinSeptember2022bythelaunchofthecarboncredittradingplatform“FederationofThaiIndustriesExchange.”TürkiyeInFebruary2022,TürkiyeorganizeditsfirstClimateCouncilmeetingwithparticipationbypublicandprivateinstitutionsaswellasnongovernmentalorganizations.ThecouncilrecommendedthelaunchofapilotETSin2024toalignthedevelopmentofanationalETSinTürkiyewiththecountry’s2053net-zerotarget.Thecouncilalsorecommendedthatfutureallowanceauctionrevenuesbedevotedtogreentransformation.TheserecommendationswerereflectedinTürkiye’s“MediumTermProgramme(2023—2025),”whichwasapprovedbythepresidentandpublishedintheofficialgazetteinSeptember2022.UkraineThedesignprocessoftheUkrainianETShasbeenseverelyimpactedbyRussia’sinvasionofUkraine,makingitimpossibletofinalizethedraftinstrumentsforcap-settingandallowanceallocationdevelopedduringtheyear.Astakeholderengagementprocesswasneverthelesscarriedoutandfinalizedinearly2023.UnitedKingdomTheUnitedKingdomlaunchedamajorconsultationonplanreforms.Theconsultationaddressedseveralissues,includinghowtoalignthecaptrajectorywiththecountry’snet-zerotargetandexpandingtheplan’ssectoralcoverage.Aninitialresponsewithchangestobeimplementedfrom2023waspublishedinAugust2022,whilethefullresponseisexpectedin2023.FOREWORDSUMMARYCHAPTER1CHAPTER2CHAPTER3CHAPTER4ANNEXES66STATEANDTRENDSOFCARBONPRICING2023WORLDBANK.ORGTABLEC.4CARBONPRICINGDEVELOPMENTSINSELECTEDUSSTATESJURISDICTIONRECENTDEVELOPMENTSCaliforniaInDecember2022,theBoardoftheCaliforniaAirResourcesBoard(CARB)adoptedthestate’sFinal2022ScopingPlan,whichestablishesthestrategytomeetCalifornia’semissionsreductiontargets.Inlightoftheadditionalemissionsreductionsnowexpectedby2030,theboardannounceditwouldreviewallmajorprograms,includingthestate’scap-and-tradesystem.CARBwillreporttothestatelegislatureonanypotentialprogramchangesbytheendof2023.HawaiiSeveralcarbontaxbillshavebeenintroducedinthecurrent(2023)legislativesession,includingHB1146,SB1004,andSB1008.MassachusettsAsaresultofthereviewoftheETSregulationin2021,theMassachusettsDepartmentofEnvironmentalProtectionstartedauctioningfuturevintageallowancesinJuneandSeptember2022.Ineachoftheauctions,thedepartmentofferedalmost400,0002023-vintageallowances,equivalentto5%ofthe2023cap.NewYorkStateInJanuary2023,NewYork’sClimateActionCouncilissuedaFinalScopingPlanthatproposesarangeofpoliciesandactionstomeetthestate’scarbonneutralitygoalin2050,includinganeconomy-widecap-and-investprogram.Whenadopted,theprogramwillcoverallemittingsectorsunderanenforceableanddecliningcap,withthecapsfor2030and2050correspondingtostate-wideemissionlimits.ThegovernorhasdirectedtheDepartmentofEnvironmentalConservationandtheNewYorkStateEnergyResearchandDevelopmentAuthoritytodevelopETSregulationsbeforeJanuary2024.NorthCarolinaInanEnvironmentalManagementCommissionAirQualityCommitteemeetinginJuly2022,NorthCarolina’sDepartmentofEnvironmentalQualityprovidedinformationonhowaproposedregulationtobecomeaparticipatingstateinRGGIdeviatesfromtheexistingRGGIModelRule.Amongothers,theNorthCarolinaregulationwouldcoverindustrialunits,regardlessofgridconnectivity,andemissionsfrombiomass/biofuel.ConsiderationoftheRGGIrulebyNorthCarolina’sEnvironmentalManagementCommissionhasbeendelayeduntil2023.OregonInMarch2022,Oregon’sDepartmentofEnvironmentalQualitydistributedallowancestothe18coveredfuelsupplierscurrentlysubjecttotheemissionscapundertheClimateProtectionProgram.Thedistributionofallowanceswasbasedontheprogramrulesforthefirstcomplianceperiod,whichbeganin2022andincludescalendaryears2023and2024.InSeptember2022,thedepartmentlaunchedavoluntarytradingplatformaswellastheformsneededfortradingbetweentransferringandacquiringcoveredfuelsuppliers.PennsylvaniaInApril2022,thefinalregulationtoestablishanETSinPennsylvaniaandtoparticipateinRGGIwaspublished.Theregulationiscurrentlybeingchallengedbyseverallawsuitsand,untillegalproceedingsareconcluded,thePennsylvaniaDepartmentofEnvironmentalProtectionwillnottakestepstoimplementorenforcetheRGGIregulation.RegionalGreenhouseGasInitiative(RGGI)TheRGGImemberstatesarecurrentlyconductingtheThirdProgramReview.Asperthecurrenttimelinefortheprogramreview,releasedinNovember2022,anupdateddraftModelRulewouldbereleasedinfall2023,withtheprogramreviewconcludinginDecember2023.WashingtonStateFollowingayearofintensivepreparations,Washington’snewcap-and-investprogramstartedoperatinginJanuary2023.Thesystem’sdesigncloselyresemblesthatofCalifornia’sprogram.Thestatelaunchedapublicprocesstoexplorethepossibilityoflinkingtoothercap-and-tradesystemsinFebruary2023.UnitedStatesAllofthesignificantcarbonpricingdevelopmentsthattookplaceintheUnitedStatesin2022andearly2023occurredonthesubnationallevel,assummarizedinTableC.4.UruguayDecree435/022setthenewvalueoftheUruguayancarbontaxatUYU6,024(USD155.86)/tCO2efor2023.VietnamInJuly2022,Vietnamissuedadecisionbywhichthecountrycommitstoachievingnet-zeroGHGemissionsby2050,withamidtermtargetof43.5%belowthebaselineby2030.Thisdecisionfollows“Decree06/2022/ND-CP,”whichoutlinesaroadmapfortheimplementationofanETSwithadecliningcapcorrespondingtoVietnam’snationallydeterminedcontribution.ThepilotNationalCreditingProgramandpilotETSareexpectedtostartin2024and2026,respectively.Theywillbecomefullyoperationalby2026and2028.FOREWORDSUMMARYCHAPTER1CHAPTER2CHAPTER3CHAPTER4ANNEXES67STATEANDTRENDSOFCARBONPRICING2023WORLDBANK.ORGD.1DomesticcreditingmechanismsThissectionoutlinessignificantdevelopmentsinregional,national,andsubnationalcreditingmechanisms.FormoredetailedinformationonallcarbontaxesandETSs,seeAnnexCandtheCarbonPricingDashboard,aninteractiveonlineplatformthatprovidesup-to-dateinformationonexistingandemergingcarbonpricinginstrumentsaroundtheworld.AlbertaemissionoffsetsystemTheTechnologyInnovationandEmissionsReductionRegulationwasamendedeffectiveJanuary1,2023,andupdatedanumberofrequirementsforregulatedfacilitiesandAlbertaemissionoffsetprojects.Theseincludeaphased-inincreaseincredituselimits,updatingthecreditexpiryperiodtofiveyears,andadditionalreviewsforprojectcreditextensions.Theguidanceandrequirementsofthesystemarealsoupdated,includingtheProjectStandardforEmissionOffsetProjectDevelopersandtheCarbonOffsetEmissionFactorHandbook.AlbertaEnvironmentandProtectedAreasapprovedandreleasedarevised“EnhancedOilRecovery”quantificationprotocolin2022andisdevelopingan“ImprovedForestManagementonPrivateLands”quantificationprotocol.AustraliaemissionsreductionfundIn2022,theAustraliangovernmentappointedanindependentpaneltoreviewtheintegrityofAustralianCarbonCreditUnits(ACCUs)undertheEmissionsReductionFund.Thepanelexaminedgovernancearrangementsandlegislativerequirementsofthecarboncreditingplan,aswellastheintegrityofthekeymethodsusedandotherplansettingsaffectingtheintegrityofACCUs.ThepanelcompleteditsreviewinDecember2022,concludingthattheACCUplanarrangementsareessentiallysound,andincludesanumberofrecommendationstohelpclarifygovernance,improvetransparency,promotecobenefits,andenhanceconfidenceintheintegrityandeffectivenessoftheplan.BritishColumbiaoffsetprogramAprotocolonmethanefromorganicwastewaspublishedinAugust2022.CaliforniacomplianceoffsetprogramInNovember2022,CARBheldapublicworkshoptobegindiscussingpossibleupdatestotheForestOffsetProtocol.D.Annex.CreditingMechanismUpdatesThisAnnexpresentsanoverviewofcreditingmechanismsthatareinforce,aswellassignificantdevelopmentsincarboncreditingmechanismsintheyearuptoApril1,2023.Wherenosignificantchangesoccurredoverthepastyear,thesemechanismsarenotincluded.FOREWORDSUMMARYCHAPTER1CHAPTER2CHAPTER3CHAPTER4ANNEXES68STATEANDTRENDSOFCARBONPRICING2023WORLDBANK.ORGChinagreenhousegasvoluntaryemissionsreductionsprogramThegovernmentannouncedinlate2021thatBeijingGreenExchangewilldevelopandhostanewnationaltradingplatformofChinaCertifiedEmissionReductions(CCERs).Inearly2022,CCERsweretradingatabout45CNY(USD6.55)atonne,andinJuly2022,thepriceofCCERsexceededthepriceofcarbonemissionallowancesforthefirsttime,atrendthatcontinuedinthesecondhalfof2022.ColombiacreditingmechanismAccordingtotheamendmentmadebyLaw2277in2022(Paragraph1,Article47),theuseofcarboncreditsunderthecarbontaxexemptionislimitedto50%ofthegreenhousegas(GHG)emissionsthatwouldincurthetax.GuangdongPuHuiOffsetCreditingMechanismInApril2022,theDepartmentofEcologicalEnvironmentofGuangdongProvincerevisedtheMeasuresfortheAdministrationofCarbonPuHuiTradinginGuangdongProvince.TheGuangzhouEmissionsExchangeorganizedthetechnicalreviewoftherevisedversionofemissionreductionsmethodology.IndiaInJuly2022,theIndianLowerHouseofParliamentadoptedanamendmentbilltothe2001“EnergyConservationAct”toprovidethelegalbasistoestablishadomesticcarbonmarketandgrantthepowertoissuecarboncreditcertificatesforthereductionofcarbonemissions.InDecember2022,theUpperHouseofParliamentpassedtheamendmentbill.ThecreditsmaybeusedbyIndiancompaniesnotcoveredunderthePerform,Achieve,andTradeScheme(PATS)fortheirvoluntarycommitments.ProvisionsforinternationaluseofthecarboncreditscreatedbyexceedingPATSperformancebenchmarksisunderconsideration.AsofApril1,2023,theMinistryofPowerisconsultingonaproposedframeworkfortheCarbonCreditTradingScheme.IndonesiacreditingmechanismUndertheumbrellaofthe2021presidentialframeworkregulationoncarbonpricing,Indonesia’sMinistryofEnvironmentandForestsadoptedaministerialregulationondomesticcarbontradingonOctober20,2022.Theregulationcoversapproachesandcriteriaforallowance-basedemissionstrading,carboncredittrading,andperformance-basedmitigationpayments.Inrelationtodomesticcarboncrediting,theregulationoutlinesgeneralrulesandmodalitiesforthevalidationandregistrationofeligiblemitigationprojectactivitiesandforverification,certification,andtradingofachievedmitigationoutcomes(“carboncredit”).Theministerialregulationstatesthatcarboncreditgenerationandtradingwouldbeeligibleintheenergy,waste,industrialprocesses,agriculture,andforestrysectors,aswellasothersectorswherethereissufficientknowledgeandtechnologytocarryoutprojects.IndonesiangovernmentministriesmustdevelopplansforeachsubsectortheyareresponsibleforonhowthesubsectorwillmeetitsshareofIndonesia’snationallydeterminedcontribution(NDC)targets.Theproposalrequiresasubsectorplantobeinplacebeforecreditscanbetraded.TheregulationssetoutthataproportionofissuedcreditswillbewithheldbythegovernmenttohelpensureIndonesiameetsitsNDC.Importantly,theregulationalsoincludesprovisionsfor(1)mutualrecognitionofreputableinternationalcarbonstandardsand(2)correspondingadjustments,includingimplementationarrangements.FOREWORDSUMMARYCHAPTER1CHAPTER2CHAPTER3CHAPTER4ANNEXES69STATEANDTRENDSOFCARBONPRICING2023WORLDBANK.ORGJointcreditingmechanismTwenty-fivecountrieshavejoinedtheJCM.BetweenAugustandOctober2022,Azerbaijan,Georgia,Moldova,Senegal,Tunisia,SriLanka,Uzbekistan,andPapuaNewGuineawereaddedasthenewestJCMpartners.SeventeenpartnersthathadsignedupbeforethepandemicincludeBangladesh,Cambodia,Chile,CostaRica,Ethiopia,Indonesia,Kenya,Laos,theMaldives,Mexico,Mongolia,Myanmar,Palau,thePhilippines,SaudiArabia,Thailand,andVietnam.QuébecoffsetcreditingmechanismAregulationconcerningafforestationorreforestationonprivatelandswasadoptedonDecember13,2022.SakhalinOblastpilotcreditingmechanismInMarch2022,RussiapassedafederallawimplementingapilotsystemofemissionstradinginSakhalinOblastthatallowsforcarboncrediting.Thefirsttwoprojectswereregisteredduringtheyear.Asolarpowergenerationprojectwasthefirst(andsofar,only)projecttobeissuedcredits.TheMoscowExchangelaunchedtradingincarbonunitsinSeptember2022.Thefirsttradewasanauctionof20unitscreditedtoapilotprojectofDalEnergoInvestLLConSakhalin.SouthAfricacarbontaxoffsetsystemThegovernmentisseekingtodevelopadomesticoffsetstandard,intendedtobeoperationalinfuturephases.SpanishcarbonfundforasustainableeconomyAcallforprojectsthatwasstartedin2021wasconcludedin2022.SwitzerlandCO2attestationscreditingmechanismCompensationprojectsabroadarepossibleunderArticle6.2oftheParisAgreement.Bilateralagreementswith11partnercountriesareinplaceandafirstprojectinGhanahasbeenauthorized.ThailandvoluntaryemissionsreductionprogramInAugust2022,VerraandtheThailandGreenhouseGasManagementOrganisationsignedamemorandumofunderstandingtojointlysupporttheimplementationoftheThailandVoluntaryEmissionReductionProgram.D.2IndependentcreditingmechanismsandstandardsGoldstandardNotabledevelopmentsin2022includedtheintroductionofmandatoryuseofasustainabledevelopmentgoal(SDG)tooltosupportstandardizedreportingofSDGimpacts,introductionofnewregistryfunctionalityandrequirementstosupportuseofArticle6,andthelaunchofworkinggroupsandconsultationsondigitizationofthecarbonmarket,includingdigitalmonitoring,reporting,andverification(MRV)anddigitalinfrastructureandtokenization.Inaddition,GoldStandardintroducedmultiplenewmethodologiestoenablecreditingactivities,includingforelectrictwo-andthree-wheeledtransportation,carbonsequestrationthroughconcreteaggregate,thepaperandpulpsector,anditsfirstcleancookingmethodologyintegratingdigitalmonitoring,reporting,andverification(MRV)toenablereal-timemeasurementofenergyuse.FOREWORDSUMMARYCHAPTER1CHAPTER2CHAPTER3CHAPTER4ANNEXES70STATEANDTRENDSOFCARBONPRICING2023WORLDBANK.ORGPlanVivoStandardThenewestversionofthePlanVivoStandard(V5.0)waslaunchedin2022.Itconsistsofthreekeydocuments:ProjectRequirements,MethodologyRequirements,andValidation&VerificationRequirements.Thesedocumentsaresupplementedbyvariousguidancedocuments,proceduraldocuments,andtemplates.Amongotherupdates,theStandardV5.0introducedthreenewunittypesofPlanVivocertificates(PVCs)toincreasetransparencyonenvironmentalbenefitsandclaims:•VerifiedPVCs(vPVCs)–PVCswhosemonitoringdatahavebeenverified.Thesearetobeatthecoreoftheexpostofferingandmaybeissuedontoaregistryandretired.•ReportedPVCs(rPVCs)–PVCsthatarebasedonmonitoringdata,indicatingthattheremoval/mitigationeventhastakenplace,butthesedatahavenotyetbeenverified.Theseunitsmaybeallocatedtobuyersontheregistry,butnotretireduntilconversiontovPVCs.•FuturePVCs(fPVCs)–PVCsthatareexpectedtobeachievedinthefuturebasedoncurrentprojectactivitiesandrobustclimate-benefitmodels.•PlanVivohasalsodevelopedproceduresaroundmanagingenvironmentalandsocialrisktoensuresafeguardingofcommunityrights.VerifiedcarbonstandardVerracelebratedtheissuanceofits1billionthVerifiedCarbonStandard(VCS)creditin2022.VerrapublishedtwonewmethodologiesundertheVCSprogram,for“ImprovedForestManagementProjects”and“theproductionofbiocharanditsuseinsoilsandotheremergingapplications”.VerraranapublicconsultationinOctober2022onanewconsolidatedReducingEmissionsfromDeforestationandForestDegradationmethodologyfortheVCS,expectedtobefinalizedinthethirdquarterof2023.FOREWORDSUMMARYCHAPTER1CHAPTER2CHAPTER3CHAPTER4ANNEXES71STATEANDTRENDSOFCARBONPRICING2023WORLDBANK.ORG1.I.Parry,“FiveThingstoKnowaboutCarbonPricing,”InternationalMonetaryFund(IMF),September2021;CarbonPricingLeadershipCoalition,“WhatIsCarbonPricing?,”2023.2.WorldBank,“GlobalEconomicProspects”(Washington,DC:WorldBank,January2023),https://openknowledge.worldbank.org/server/api/core/bitstreams/254aba87-dfeb-5b5c-b00a-727d04ade275/content;IMF,WorldEconomicOutlookUpdate,2023,https://www.imf.org/en/Publications/WEO/Issues/2023/01/31/world-economic-outlook-update-january-2023.3.G.G.Molina,M.Montoya-Aguirre,andE.Ortiz-Juarez,“AddressingtheCostofLivingCrisisinVulnerableCountries:PovertyandVulnerabilityProjectionsandPolicyResponses”(NewYork:UnitedNationsDevelopmentProgramme,2022),https://www.undp.org/publications/addressing-cost-living-crisis-developing-countries-poverty-and-vulnerability-projections-and-policy-responses.4.InternationalEnergyAgency(IEA),“WorldEnergyOutlook2022,”2022,https://iea.blob.core.windows.net/assets/830fe099-5530-48f2-a7c1-11f35d510983/WorldEnergyOutlook2022.pdf.5.G.Sgaravatti,S.Tagliapietra,C.Trasi,andG.Zachmann,“NationalPoliciestoShieldConsumersfromRisingEnergyPrices,”BruegelDatasets,November4,2021,https://www.bruegel.org/dataset/national-policies-shield-consumers-rising-energy-prices.6.NationalTreasuryRepublicofSouthAfrica,“BudgetReview:2022,”2022,https://www.treasury.gov.za/documents/national%20budget/2022/review/FullBR.pdf;AustralianCompetitionandConsumerCommission,“ACCCtoMonitorPetrolPricesFollowingCutinFuelExcise,”PressRelease,March29,2022,https://www.accc.gov.au/media-release/accc-to-monitor-petrol-prices-following-cut-in-fuel-excise.7.IEA,“2022Energy-CrisisSupporttoVulnerableHouseholdsandSectors,”https://www.iea.org/policies/16568-2022-energy-crisis-support-to-vulnerable-households-and-sectors.8.IMF,“FiscalPoliciesDatabase:DatabaseofFiscalPolicyResponsestoCOVID-19,”October2021,https://www.imf.org/en/Topics/imf-and-covid19/Fiscal-Policies-Database-in-Response-to-COVID-19.9.T.MutaandM.Erdogan,“TheGlobalEnergyCrisisPushedFossilFuelConsumptionSubsidiestoanAll-TimeHighin2022,”IEA,February16,2023,https://www.iea.org/commentaries/the-global-energy-crisis-pushed-fossil-fuel-consumption-subsidies-to-an-all-time-high-in-2022.10.I.Shine,“GlobalDebtDropsbutHitsRecordHighinDevelopingCountries,PlusOtherEconomyStoriesYouNeedtoReadThisWeek:Geo-Economics,”WorldEconomicForum,February24,2023,https://www.weforum.org/agenda/2023/02/global-debt-2022-and-other-economy-stories-february-2023/.11.UNNews,“WFPScalesUpSupportforMillionsWho‘CannotWait’forFoodAidAmidHornofAfricaDrought,”August19,2022,https://news.un.org/en/story/2022/08/1125082.12.UnitedNations’High‑LevelExpertGroupontheNetZeroEmissionsCommitmentsofNon-StateEntities,“IntegrityMatters:NetZeroCommitmentsbyBusinesses,FinancialInstitutions,CitiesandRegions:ReportfromtheUnitedNations’High-LevelExpertGroupontheNetZeroEmissionsCommitmentsofNon-StateEntities,”2022,https://www.un.org/sites/un2.un.org/files/high-level_expert_group_n7b.pdf.13.IEA,basedonidentifiedpledgesinthelaw,proposedlegislation,policydocuments,andoralpledges.14.NetZeroTracker,“GlobalNetZeroCoverage:NetZeroNumbers,”PressRelease,March12,2023,https://zerotracker.net/.15.UnitedNations’High‑LevelExpertGroupontheNetZeroEmissionsCommitmentsofNon-StateEntities,“IntegrityMatters,”2022.16.UnitedNationsEnvironmentProgramme,“TheClosingWindow:ClimateCrisisCallsforRapidTransformationofSocieties,TheEmissionsGapReport2022”(Nairobi:UnitedNationsEnvironmentProgramme,2022).17.IEA,“NumberofCountrieswithNDCs,Long-TermStrategiesandNetZeroPledges,andTheirSharesofGlobalCO2Emissionsin2020,”October26,2022,https://www.iea.org/data-and-statistics/charts/number-of-countries-with-ndcs-long-term-strategies-and-net-zero-pledges-and-their-shares-of-global-co2-emissions-in-2020.18.UnitedNationsEnvironmentProgramme,“TheClosingWindow,”2022.19.IntergovernmentalPanelonClimateChange(IPCC),“IPCCSixthAssessmentReport(AR6)‘ClimateChange2023,’”Synthesisreportpreparedforthe58thsessionoftheIPCC,Interlaken,Switzerland,March13–17,2023.20.See,e.g.,A.Guibourgé-Czetwertyński,“TacklingHighEnergyPricesandFightingEnergyPoverty–aViewfromPoland,”Euractiv,November26,2021;InternationalCarbonActionPartnership(ICAP),“ChinaReleasesAllocationPlanandComplianceArrangementsfor2021and2022,”March27,2023;WKONews,“TheElectricityPriceCompensationMustBeImplementedQuickly,”March5,2022.EndnotesFOREWORDSUMMARYCHAPTER1CHAPTER2CHAPTER3CHAPTER4ANNEXES72STATEANDTRENDSOFCARBONPRICING2023WORLDBANK.ORG21.See,e.g.,High-LevelCommissiononCarbonPrices,“ReportoftheHigh-LevelCommissiononCarbonPrices,”2017;S.Cevik,“ClimateChangeandEnergySecurity:DilemmaorOpportunityoftheCentury?,”IMF,September2022;F.Panetta,“GreenerandCheaper:CouldtheTransitionAwayfromFossilFuelsGenerateaDivineCoincidence?,”EuropeanCentralBank,November2022;ClimateActionTracker,“GlobalReactiontoEnergyCrisisRisksZeroCarbonTransition,”June2022;A.ElgouacemandJ.Teusch,“TheRoleofCarbonPricinginMeetingEnergyGoals,”OfficialMonetaryandFinancialInstitutionsForum,February2023.22.C.Schoder,“Regime-DependentEnvironmentalTaxMultipliers:Evidencefrom75Countries,”JournalofEnvironmentalEconomicsandPolicy,2022,https://doi.org/10.1080/21606544.2022.2089238.23.IEA,“FossilFuelsConsumptionSubsidies2022,”February2023;M.MartenandK.vanDender,“TheUseofRevenuesfromCarbonPricing,”OrganisationforEconomicCo-operationandDevelopment(OECD)TaxationWorkingPaper43,OECDCentreforTaxPolicyandAdministration,2019.24.EcosystemMarketplace,“TheStateoftheVoluntaryCarbonMarkets2022Q3Briefing,”August3,2022.25.FederalMinistryforEconomicAffairsandClimateAction,“RobertHabeck:‘WeAreTakingaMoreCautiousApproachtoCarbonPricing,ReducingtheBurdenonHouseholdsandCompanies,’”PressRelease,October28,2022,https://www.bmwk.de/Redaktion/EN/Pressemitteilungen/2022/10/20221028-robert-habeck-we-are-taking-a-more-cautious-approach-to-carbon-pricing-reducing-the-burden-on-households-and-companies.html.26.FederalMinistryforEconomicAffairsandClimateAction,“RobertHabeck:‘WeAreTakingaMoreCautiousApproach,’”2022.27.E.Godongwana,“2022BudgetSpeech,”February23,2022,https://www.treasury.gov.za/documents/national%20budget/2022/speech/speech.pdf.28.CaliforniaAirResourcesBoard,“CARBApprovesUnprecedentedClimateActionPlantoShiftWorld’s4thLargestEconomyfromFossilFuelstoCleanandRenewableEnergy,”PressRelease22-49,December15,2022,https://ww2.arb.ca.gov/news/carb-approves-unprecedented-climate-action-plan-shift-worlds-4th-largest-economy-fossil-fuels.29.OECD,“PricingGreenhouseGasEmissions:TurningClimateTargetsintoClimateAction,”OECDSeriesonCarbonPricingandEnergyTaxation(Paris:OECDPublishing,2022).30.IMF,“WorldEconomicOutlookUpdate.”2023.31.S.Arslanalp,K.Kostial,G.Quirós-Romero,eds.,DataforaGreenerWorld:AGuidefor,”PractitionersandPolicymakers(Washington,DC:IMF,2023).32.OECD,“PricingGreenhouseGasEmissions.”33.V.Gaspar,R.Lam,P.Mauro,andR.Piazza,“FiscalPolicyCanHelpPeopleReboundfromCostofLivingCrisis,”IMF,October12,2022.34.IEA,“FossilFuelsConsumptionSubsidies2022,”2023.35.WorldBankGroup,“CommodityMarketsOutlook:Pandemic,War,Recession:DriversofAluminumandCopperPrices,”October2022,http://hdl.handle.net/10986/38160;IEA,“ElectricityMarketReport,”February2023,https://www.iea.org/reports/electricity-market-report-2023.36.U.S.BureauofLaborStatistics,CPIInflationCalculator,2023.37.M.Pathak,R.Slade,P.R.Shukla,J.Skea,R.Pichs-Madruga,andD.Ürge-Vorsatz,“TechnicalSummary,”inClimateChange2022:MitigationofClimateChange.”ContributionofWorkingGroupIIItotheSixthAssessmentReportoftheIntergovernmentalPanelonClimateChange,editedbyP.R.Shukla,J.Skea,R.Slade,A.AlKhourdajie,R.vanDiemen,D.McCollum,M.Pathak,S.Some,P.Vyas,R.Fradera,M.Belkacemi,A.Hasija,G.Lisboa,S.Luz,andJ.Malley(Cambridge,UK,andNewYork,NY:CambridgeUniversityPress,2022).38.NetworkforGreeningtheFinancialSystem(NGFS).“NGFSScenariosforCentralBanksandSupervisors,”September2022,https://www.ngfs.net/sites/default/files/medias/documents/ngfs_climate_scenarios_for_central_banks_and_supervisors_.pdf.39.TheWorldBank’sClimateActionPlan2021–2025reiteratestheWorldBank’scommitmenttousingashadowpriceofcarboninallinvestmentfinancingoperationswhereGHGaccountingisconducted.WorldBank,WorldBankGroupClimateChangeActionPlan2021–2025,2021,http://hdl.handle.net/10986/35799;WorldBank,“GuidanceNoteonShadowPriceofCarboninEconomicAnalysis,”November12,2017,https://documents.worldbank.org/en/publication/documents-reports/documentdetail/621721519940107694/guidance-note-on-shadow-price-of-carbon-in-economic-analysis.40.EuropeanBankforReconstructionandDevelopment,“MethodologyfortheEconomicAssessmentofEBRDProjectswithHighGreen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