• Carbon pricing revenues exceeded $100 billion in 2024, according to a new World Bank report released on June 10. 

• Over half of this revenue generated for public budgets was earmarked for environment, infrastructure, and development projects, representing a slight increase from previous years.

Key points of the report:

• The report titled ‘State and Trends of Carbon Pricing 2025’ notes that there are now 80 carbon pricing instruments in operation worldwide, a net increase of five over the past year. 

• The report shows that all large middle-income economies have now either implemented or are considering direct carbon pricing, with Emissions Trading Systems (ETSs) accounting for most of the new and planned instruments.

• With more countries implementing or expanding carbon taxes and ETSs, around 28 per cent of global greenhouse gas emissions are now covered by a carbon price in economies representing nearly two-thirds of global economic output. 

• This includes around half of global emissions from the power and industrial sectors. Coverage in other sectors is lower, with agricultural emissions not yet priced.

• In carbon crediting markets, demand from compliance markets almost tripled compared to last year, while growth from voluntary buyers has been negligible. 

• Credit prices continue to vary across credit types, with nature-based removal credits attracting a premium relative to other types of projects.

What is carbon pricing? 

• Carbon pricing is an important policy tool that can be used as part of a comprehensive policy package to decarbonise economies.

• Carbon pricing is an instrument that captures the external costs of greenhouse gas (GHG) emissions — the costs of emissions that the public pays for, such as damage to crops, healthcare costs from heatwaves and droughts, and loss of property from flooding and sea level rise — and ties them to their sources through a price, usually in the form of a price on the carbon dioxide (CO2) emitted.

• A price on carbon helps shift the burden for the damage from GHG emissions back to those who are responsible for it and who can avoid it. 

• Instead of dictating who should reduce emissions where and how, a carbon price provides an economic signal to emitters, and allows them to decide to either transform their activities and lower their emissions, or continue emitting and paying for their emissions. 

• In this way, the overall environmental goal is achieved in the most flexible and least-cost way to society.

• Globally, carbon pricing instruments are essential tools in the fight against climate change. 

• For example, in the European Union, carbon pricing has played an important role in reducing greenhouse gas emissions, with a 47 per cent cut achieved in sectors covered by the EU Emissions Trading System since its launch in 2005.

• Carbon pricing instruments can be categorised into two main types: compliance mechanisms and voluntary mechanisms. 

• Compliance mechanisms, such as Emissions Trading Systems (ETSs), are typically implemented and managed by governments. They set a cap on emissions and allow entities to trade emission allowances to meet their targets. 

• Voluntary mechanisms, on the other hand, are often managed by independent standards or non-governmental organisations and enable entities to voluntarily offset their emissions by purchasing carbon credits from projects that reduce or remove GHG emissions.

• Carbon pricing now covers around 28 per cent of global GHG emissions, with 43 carbon taxes and 37 ETSs in place. 

• Jurisdictions comprising almost two-thirds of global GDP have a direct carbon price in place and the largest middle-income economies, including Brazil, China, India, Indonesia, and Turkey have implemented or are moving toward implementing carbon pricing.

India’s Carbon Credit Trading Scheme

• In July 2024 the Indian government adopted detailed regulations for its planned Carbon Credit Trading Scheme, a rate-based ETS covering an initial nine energy-intensive industrial sectors. 

• The program will issue carbon credit certificates to covered facilities that outperform an emissions intensity benchmark. 

• A domestic voluntary carbon crediting program is also being developed, which would issue carbon credits for activities and emissions sources not covered by the ETS.

• On March 28, 2025, India’s Ministry of Power announced the approval of eight crediting methodologies, including for renewable energy, green hydrogen production, industrial energy efficiency, and mangrove afforestation and reforestation.

• CCTS defines the two mechanisms namely, compliance mechanism and offset mechanism. 

• In the compliance mechanism, the obligated entities shall comply with the prescribed GHG emission intensity reduction norms in each compliance cycle of CCTS. The obligated entities which reduce their GHG emission intensity below the prescribed GHG emission intensity shall be eligible for issuance of Carbon Credit Certificates. 

• ln offset mechanism, the non-obligated entities can register their projects for GHG emission reduction or removal or avoidance for issuance of Carbon Credit Certificates. 

• The CCTS is expected to contribute to achieving India’s climate goals in line with the commitments under UNFCCC and its Paris Agreement.

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