To combat climate change, more countries are adopting Emissions Trading Schemes (ETS), with 36 jurisdictions now using them. These schemes, along with carbon taxes, generated $104 billion in 2023 for environmental projects, but higher carbon prices are still needed globally to meet climate targets. The EU is pioneering carbon pricing, encouraging other nations to develop their own schemes and adapt them to local contexts to promote responsible investing.
The global fight against climate change requires a global solution. Since putting a price on carbon has been proven effective on a domestic scale, global leaders are calling upon all countries to adopt such schemes. As a result, more and more countries are creating their own Emissions Trading Schemes (ETS).
Now that some domestic carbon pricing schemes have been in operation for a while, there is increasing momentum to adopt such schemes globally. Climate change is a worldwide issue and calls upon a coordinated response. The idea is that by implementing ETS across more countries, we can collectively tackle the global problem of greenhouse gas emissions more effectively.
More and more countries are adopting ETS, and the revenues generated from these systems are rising. For instance, as of 2024, 36 jurisdictions worldwide have officially implemented an ETS. This growth is significant, considering that a decade ago, only 7% of the world's greenhouse gas emissions were covered by carbon pricing mechanisms. Today, this figure has risen to 24%, with 19% covered by ETS and an additional 6% by carbon taxes. The total revenues from carbon pricing reached $104 billion globally in 2023, which are being reinvested in various environmental projects.
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New countries are in the process of constructing their own ETS. Nations like Türkiye and Brazil are working on establishing their systems, inspired by the success stories from other regions. More and more countries are also reforming their existing ETS to make them more ambitious, often drawing inspiration from developments in Europe. For example, there are discussions in the United States about potentially creating a Carbon Border Adjustment Mechanism.
The EU is striving to be a pioneer and a leader in carbon pricing, assisting other countries by sharing its extensive experience with the EU ETS. Through initiatives like the Carbon Border Adjustment Mechanism (CBAM), the EU is encouraging other nations to develop their own carbon pricing schemes. However, these mechanisms are complex - there are ongoing efforts to adapt them to local contexts and economic conditions. Innovative approaches are emerging to combine elements of both ETS and carbon taxes in some countries, for example.
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While expanding carbon pricing to as many regions as possible is crucial, the effectiveness of these schemes also depends on achieving sufficiently high carbon prices. Currently, the EU ETS has the highest carbon price, but all prices still need to rise significantly to meet the ambitious climate targets of limiting global warming to below 2 degrees Celsius. Estimates suggest that a carbon price between $63 and $127 per ton is necessary to drive meaningful progress toward these goals.
To effectively address the global climate crisis, we need to implement as many ETS schemes worldwide as possible and ensure they are as sophisticated and efficient as we can make them.
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