World Bank: 73 jurisdictions now price carbon

(from Nerd Corner)

Nearly a quarter of global carbon dioxide emissions are now covered by carbon pricing systems, up from just 7% a decade ago, according to the World Bank’s new annual survey, State and Trends of Carbon Pricing 2023.

“This year’s report shows that governments are prioritizing direct carbon pricing policies to reduce emissions, even in difficult economic times,” it notes. Despite the “economic turmoil and geopolitical instability of this past year,” it adds, “several jurisdictions either delivered on existing plans for new [carbon pricing programs], increased their ambition, or announced further proposals for developing new initiatives in the coming years.”

Positive as these trends are, “the overall ambition of climate policies still falls severely short of what is required” to meet the Paris climate goals, the report warns. Carbon prices as well as coverage need to grow substantially beyond current levels.

Altogether, 73 countries or subnational jurisdictions now price carbon, up from 68 in spring 2022. (New participants include Austria and the state of Washington, which I’ve written about on Nerd Corner.) Most such programs currently exist in higher income countries. Africa and the Middle East are carbon pricing deserts. But preparing for the European Union’s carbon border adjustment mechanism is driving growing interest among emerging economies in carbon pricing.

The World Bank doesn’t take sides between carbon taxes or carbon markets, but its latest report is unwavering in its insistence that “Introducing a price signal for climate mitigation is critical to driving investment and behavior change to lower emissions. Carbon pricing must continue to grow, both in terms of coverage and price, to drive the transformational change needed to meet the Paris temperature goals.”

The report also notes that carbon pricing is becoming more attractive as a source of revenue “in light of increasing pressures on public budgets.” Unfortunately (from my perspective), only about 10% of carbon pricing revenue is currently used to compensate households or businesses for the cost of transitioning to a low-carbon world. The report highlights examples of countries with lump-sum carbon dividends, including Canada, Austria, and soon the European Union, with its planned Social Climate Fund. (See my recent post, “Long Live Carbon Dividends“)