Momentum is building around the world for carbon pricing instruments:
- Currently 40 national and 25 sub-national jurisdictions put a price on carbon.
- These carbon pricing initiatives cover 8 gigatons of CO2e, which is equal to 15% of global GHG emissions.
- Of the 46 carbon pricing initiatives under way or planned for implementation, 23 are ETSs, applied mainly across subnational jurisdictions, and 23 are carbon taxes, primarily implemented on the national level.
Various carbon pricing approaches are being implemented. They tend to fall on the continuum between purely a price signal and purely an ETS. They are designed to benefit from both the predictable pricing of a price signal and the flexibility offered by an ETS. The emerging trend across carbon pricing approaches is a move towards international linkage of carbon markets.
Carbon Price Signal
In 2008, the Canadian province of British Columbia put in place a carbon tax on fossil fuels burned for transportation, home heating, and electricity. The approach covers 70% of the province's total GHG emissions and is revenue neutral, implying that all the revenue earned via the carbon tax is returned to the citizens of British Columbia in the form of reductions to personal income tax, corporate income tax, and property tax, among others.
Emission Trading System
China is launching a national ETS. Once implemented, it will be the largest ETS in the world, covering approximately 40% of China’s GHG emissions. China has also signed a bilateral plan with New Zealand to cooperate on carbon markets and is working on identifying opportunities for collaboration or linking markets with other countries in the Asia-Pacific region.
Mixed Systems
In 2014, Mexico introduced a $3.50/tonne carbon price on fossil fuels and is currently preparing for a national ETS, planned for 2018. The goal is to allow emitters to use certified emission reductions (CERs) from Clean Development Mechanism projects for compliance. Mexico has also signed an MoU with the US State of California to potentially link its ETS with the California cap-and-trade programme.
The South African carbon pricing approach allows for the cancellation of offsets to mitigate the tax liability of emitters. In other words, emitters will be able to purchase and cancel offsets to reduce their carbon tax liability up to a certain limit.