State and Trends of

Carbon Pricing 2022

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FOREWORD SUMMARY CHAPTER 1 CHAPTER 2 CHAPTER 3 ANNEXES 2

The development of this report was led by the World Bank and prepared by Labuhn; Camille Leboeuf; Sungwoo Lee; Scott Legree; Emídio Lopes; Luca Lo Re;
experts from the World Bank and Climate Focus. Contributions, including on data Glenda Bezerra Lustosa; Memory Machingambi; Lía Lizzette Ferreira Márquez; Taisei
and information on mandatory cap-and-trade systems, were provided by the Matsuki; Ermi Miao; Ministry of Environment and Parks (Government of Alberta,
International Carbon Action Partnership. Additional data and contributions were also Canada); Ministry of the Environment (Estonia); Ministry of the Environment (Japan);
provided by Ecosystem Marketplace and CDP. Ministry of Finance (Luxembourg); Sara Moarif; Sarah Moyer; Daniel Nachtigall;
New Brunswick Climate Change Secretariat; Office of the Revenue Commissioners
SinoCarbon Innovation & Investment and S&P Global Platts also supported (Ireland); Matthias Ofner; Klaus Oppermann; Ian Parry; Jeannette Ramirez; Kim
development of this report. Ricard; Susanne Riedener; Marisol Rivera-Planter; Germán Romero; Giovanni Ruta;
José Ricardo Ramos Sales; Rico Salgmann; Marissa Santikarn; Juan Pedro Searle; Pola
The World Bank task team responsible for this report was composed of Joseph Pryor, Shim; Gustavo Saboia Fontenele e Silva; Edson Silveira Sobrinho; Moekti Handajani
Jichong Wu, Cameron Byers, Mustafa Ozgur Bozcaga, Alejandra Mazariegos, Mariza Soejachmoen; Will Space; Sandhya Srinivasan; Katie Sullivan; Swedish Energy Agency;
Montes de Oca Leon, Seoyi Kim, Harikumar Gadde, and Dirk Heine. Tokyo Metropolitan Government; Simon Tudiver; Maiko Uga; Under Secretariat of
Public Revenue, Ministry of Economy (Argentina); Andhyta Firselly Utami; Marijke
The Climate Focus team included Darragh Conway, Carolina Inclan, Lieke ‘t Gilde, Vermaak; Stefanie Wukovits; Olga Yukhymchuk; and Mourad Ziani.
Imogen Long, Paul Dingkuhn, Elisa Perpignan, and Adriaan Korthuis.
Report design was done by Kynda and editing was done by EpsteinWords.
This report benefited greatly from the insights and contributions from: Megersa
Abera Abate; Kyeongah Ahn; Gabriela Alarcón-Esteva; Andrés Camilo Álvarez; Erik This report has been developed as part of the Knowledge Program under the
van Andel; Veli Auvinen; Isabella Maria Pereira de Ávila; Marco Antonio Murcia Partnership for Market Implementation.
Baquero; Pía Biestro; Pierre Bouchard; Brunei Climate Change Secretariat, Ministry of
Development; Marcelo Caffera; Alexandre Xavier Ywata de Carvalho; Marcos Castro;
Central Statistics Office (Ireland); Daniella Marques Cosentino; Marta Hernández
de la Cruz; Francisco Dall'Orso; Department for Business Energy and Industrial
Strategy (United Kingdom); Department of Finance (Government of the Northwest
Territories, Canada); Department of Finance (Ireland); Department of Industry,
Science, Energy and Resources (Australia); Ira Dorband; Bill Drumheller; Maosheng
Duan; Thomas Duchaine; Jane Ellis; Dominik Englert; Klenize Chagas Fávero; Simon
Fellermeyer; Simone von Felten; Demetrio Florentino de Toledo Filho; Carolyn
Fischer; Teresa Solozabal Gallego; Aric Gliesche; Marlen Goerner; Government of
Saskatchewan, Canada; Government of Singapore; Greenhouse Gas Inventory &
Research Center (Republic of Korea); Stephane Hallagatte; Sharlin Hemraj; Min
Hou; Iñaki Gili Jauregui; Angela Naneu Churie Kallhauge; Jussi Kiviluoto; Britta

FOREWORD SUMMARY CHAPTER 1 CHAPTER 2 CHAPTER 3 ANNEXES 3

 FIGURE 1 FIGURE 12
Map of carbon taxes and ETSs 16 Map of national and subnational crediting mechanisms 39

FIGURE 2 FIGURE 13A

Share of global GHG emissions covered by carbon pricing Type and use of internal carbon pricing 42
instruments 17
FIGURE 13B
FIGURE 3 Uptake of internal carbon pricing 43
Absolute emissions coverage, share of emissions covered, and
prices for CPIs across jurisdictions 19 FIGURE 14
Prices of standardized carbon credit contracts 43
FIGURE 4
FIGURE 15
List of figures

Price evolution in select ETSs from 2008 to 2021 21

Multilayered purchaser decisions shape diverse markets
FIGURE 5 and prices 45
Record high carbon tax rates in six jurisdictions 23
FIGURE 16
FIGURE 6 Credits issued, registered activities, average 2020 price,
Carbon prices as of April 1, 2022 26 and sectors covered by crediting mechanisms 66

FIGURE 7
Revenue generated per carbon pricing instrument in 2021 27

FIGURE 8
Evolution of global carbon pricing revenues over time 27

FIGURE 9
Global volume of issuances by crediting mechanism category 34

FIGURE 10
Stylized representation of types of carbon crediting
mechanisms and market segments 36

FIGURE 11
Credit issuance and number of projects in 2021, by category of
mechanisms 37

FOREWORD SUMMARY CHAPTER 1 CHAPTER 2 CHAPTER 3 ANNEXES 4

 BOX 1 TABLE B1
Direct carbon pricing instruments 13 Carbon pricing developments in selected Canadian
provinces and territories 56
BOX 2
Revisions to global GHG coverage estimates in this TABLE B2
year’s report 18 Developments in China’s subnational pilots 57

BOX 3
The role of the financial sector in emissions trading 24

BOX 4
The EU’s proposed Carbon Border Adjustment Mechanism 29

BOX 5
Article 6 rules on linking emissions trading systems 31
List of boxes

BOX 6
Just transition in the EU’s climate policy 32

BOX 7
and tables

Understanding carbon credit markets 35

BOX 8
Internal carbon pricing 42

BOX 9
What is tokenization? 47

BOX 10
The finalized Article 6 Rulebook provides room for
flexibility in voluntary transactions 48

BOX 11
Article 6 activities 50

FOREWORD SUMMARY CHAPTER 1 CHAPTER 2 CHAPTER 3 ANNEXES 5

List of abbreviations
BC British Columbia MRV Monitoring, reporting, and verification
BCA Border carbon adjustment MSR Market stability reserve
CAD Canadian dollar MtCO2 Million metric tons of carbon dioxide
CBAM Carbon Border Adjustment Mechanism NbS Nature-based solution
CCM Cost containment mechanism NDC Nationally determined contribution
CCR Cost containment reserve nEHS National Emissions Trading Scheme (Germany)
CDM Clean Development Mechanism NOK Norwegian krone
CHF Swiss franc NZD New Zealand dollar
CNY Chinese yuan OBPS Output-based pricing system (Canada)
CO2 Carbon dioxide OECD Organisation for Economic Co-operation and
COP Conference of the Parties Development
COP26 2021 United Nations Climate Change Conference (26th PMI Partnership for Market Implementation
Conference of the Parties) REDD+ Reducing Emissions from Deforestation and Forest
COP27 2022 United Nations Climate Change Conference (27th Degradation
Conference of the Parties) RGGI Regional Greenhouse Gas Initiative
CORSIA Carbon Offsetting and Reduction Scheme for SBTi Science-Based Targets Initiative
International Aviation SDG Sustainable Development Goal
CPI Carbon pricing instrument SGD Singapore dollar
EDGAR Emissions Database for Global Atmospheric Research SLCCS Sri Lanka Carbon Crediting Scheme
EITe Emissions-intensive trade exposed TCI-P Transportation and Climate Initiative Program
EPE Empresa de Pesquisa Energética (Energy Research tCO2 Metric tons of carbon dioxide
Corporation, Brazil) tCO2e Metric tons of carbon dioxide equivalent
ETS Emissions trading system TEPA Taiwan Environmental Protection Administration
EU European Union UAH Ukrainian hrynia
EUR Euro UK United Kingdom
G7 Group of Seven UKA United Kingdom Allowance
G20 Group of 20 UN United Nations
GBP British pound UNFCCC United Nations Framework Convention on Climate
GHG Greenhouse gas Change
GtCO2 Gigatons (a billion metric tons) of carbon dioxide US United States
HFLD High Forest Low Deforestation USD United States dollar
ICAO International Civil Aviation Organization UYU Uruguayan peso
ICP Internal carbon price VCMI Voluntary Carbon Markets Integrity Initiative
IMF International Monetary Fund VCS Verified Carbon Standard
IPCC Intergovernmental Panel on Climate Change WTO World Trade Organization
ITMO Internationally transferred mitigation outcome ZAR South African rand
JCM Joint Crediting Mechanism
KCU Korean Credit Unit
KOC Korean Offset Credit
LPG Liquefied petroleum gas

FOREWORD SUMMARY CHAPTER 1 CHAPTER 2 CHAPTER 3 ANNEXES 6

Table of
contents FOREWORD

EXECUTIVE SUMMARY

CHAPTER 1: INTRODUCTION

CHAPTER 2: CARBON TAXES AND EMISSIONS TRADING SYSTEMS

CHAPTER 3: CARBON CREDITING

ANNEX A: METHODOLOGIES AND SOURCES

ANNEX B: CARBON TAX AND ETS UPDATES

ANNEX C: CREDITING MECHANISM UPDATES

FOREWORD SUMMARY CHAPTER 1 CHAPTER 2 CHAPTER 3 ANNEXES 7

 The climate crisis continues to escalate amid a prolonged finances, aid pandemic recovery, or support vulnerable sectors
pandemic, increasing economic instability and geopolitical and communities to adapt to climate impacts and achieve just
tensions. Commitments made at the 2021 United Nations Climate transitions.
Change Conference (COP26) keep hope alive that avoiding the
worst effects of climate change is within our reach, but the peril During this year, cross-border approaches for carbon pricing
remains stark. The latest work from the Intergovernmental and international cooperation have made significant strides
Panel on Climate Change makes plain that we must arrest rising forward. The European Union moved closer to adopting its Carbon
emissions now to ward off climate danger. Meeting this challenge Border Adjustment Mechanism (CBAM), while Canada and other
in uncertain times calls for ambitious, just, and comprehensive jurisdictions reaffirmed their commitments to investigate border
action by policymakers. In this regard, carbon pricing, within an carbon adjustments (BCAs) and bring down hitherto daunting
integrated policy mix, is one of the most powerful tools available technical and political barriers to such reforms. The COP26
for guiding economies toward low-emission paths. To maximize agreements on new rules for international carbon markets will
the benefits, carbon price signals must be sustained, strengthened, help pave the way for more cross-country collaborations and
and extended to a greater portion of global emissions, three- trade.
quarters of which are currently untouched by carbon pricing
instruments. However, recent economic instability, volatile Encouragingly, more countries continue to explore options to
energy markets, and rising energy prices exacerbate the political introduce a carbon price, including low- and middle-income
challenges for policymakers. countries. The World Bank is gearing up to meet this increased
demand from client countries for technical support on carbon
The World Bank’s annual report on the State and Trends of pricing—and is helping countries mainstream it into wider fiscal
Carbon Pricing continues to provide a trusted global snapshot policy and long-term decarbonization strategies. This includes
Foreword

of carbon pricing developments from year to year. The past year developing advisory services, analytics, innovation, and hosting
has seen some positive signs, particularly in relation to higher initiatives such as the Partnership for Market Implementation
carbon prices, increased revenues, and the adoption of new rules (PMI). The PMI will provide technical assistance to at least 30
for international carbon markets (under Article 6 of the Paris countries in developing and implementing domestic carbon pricing
Agreement). However, as in previous years, progress has been and operationalizing Article 6 of the Paris Agreement.
far from adequate. As of April 1, 2022, only four new carbon
pricing instruments had been implemented in the past year and The World Bank Group’s Climate Change Action Plan (2021-2025)
despite record-high prices in some jurisdictions, the price in most committed to increase the World Bank’s climate finance target,
jurisdictions remains well below the levels required to deliver on align financing flows with the goals of the Paris Agreement, and
the Paris Agreement temperature goals. achieve results that integrate climate and development. Through
this Action Plan, the World Bank Group is well positioned to
In 2021, higher carbon prices, revenue from new instruments, and leverage its convening power, knowledge and research, and
increased auctioning in emissions trading systems resulted in a country program support to help countries make informed climate
record USD 84 billion of global carbon pricing revenue, around decisions, including on carbon pricing.
60% higher than in 2020. Such an impressive increase highlights
carbon pricing’s burgeoning potential to reshape incentives and
investment toward deep decarbonization. Further, it illustrates BERNICE VAN BRONKHORST
carbon pricing’s potential role as a broader fiscal tool to contribute Climate Change Global Director, World Bank Group
toward broader policy objectives, such as to restore depleted public

FOREWORD SUMMARY CHAPTER 1 CHAPTER 2 CHAPTER 3 ANNEXES 8

 CARBON PRICING CAN PROVIDE DIRECT CARBON PRICING CONTINUES
THE IMPETUS FOR ECONOMIC TO BE ADOPTED BUT GLOBAL

Executive summary TRANSFORMATION AND RECOVERY

• More ambitious carbon prices can help close the gap between
pledges and policy and “keep 1.5 alive.”
COVERAGE REMAINS LOW

• Worldwide, 68 carbon pricing instruments (CPIs), including taxes

and emissions trading systems (ETSs), are operating and three
more are scheduled for implementation.
• Along with lowering emissions, carbon pricing can improve energy
and industrial efficiency, limit reliance on imported energy, • CPIs in operation cover approximately 23% of total global
promote cleaner air, protect and regenerate landscapes, and greenhouse gas (GHG) emissions. This represents a small
provide a valuable source of government revenue. increase in total global coverage as a result of four new systems
commencing in the past year.
• But adopting carbon prices remains politically challenging,
particularly amid rising inflation and energy prices. There is a • The International Maritime Organization is considering placing
clear need to ensure policies are fair, effective, and embedded a price on emissions from international shipping activities. If
within integrated climate and social policies. adopted, this would represent a major step in tackling global GHG
emissions.

CARBON PRICES HAVE HIT RECORD CARBON REVENUES HAVE

HIGHS IN MANY JURISDICTIONS INCREASED SHARPLY

• Record ETS prices were observed in the European Union (EU), • Global carbon pricing revenue increased by almost 60% in the
California, New Zealand, and Republic of Korea, among other past year, to around USD 84 billion.
markets, while several carbon taxes also saw prices hit their
highest levels yet. • With prices rising and reduced free allocation, ETS revenues
surpassed carbon tax revenues for the first time.
• A combination of policy reforms, anticipated changes, speculative
investment interest, and broader economic trends, especially in • Increasing carbon pricing revenues can support sustainable
global energy commodity markets, are driving these ETS price economic recovery, finance broader fiscal reforms, or help buffer
spikes. countries from economic and international turbulence.

• Nonetheless, prices must rise considerably more to meet the Paris

Agreement temperature goals, as less than 4% of global emissions
are currently covered by a direct carbon price within the range
needed by 2030.

FOREWORD SUMMARY CHAPTER 1 CHAPTER 2 CHAPTER 3 ANNEXES 9

 CROSS-BORDER APPROACHES TO MARKETS FOR CARBON CREDITS ARE
CARBON PRICING ARE INCREASINGLY GROWING RAPIDLY

Executive summary GAINING TRACTION

• The EU moved closer to adopting its Carbon Border Adjustment

Mechanism, and Canada and the United Kingdom (UK) are
• Credits from independent crediting mechanisms clearly dominate
the carbon market.

exploring options for similar mechanisms. • Annual voluntary carbon market value exceeded USD 1 billion for
the first time, driven by corporate commitments.

• The International Monetary Fund (IMF) and World Trade

Organization (WTO) are advocating for an international carbon • Compliance demand for carbon credits remains limited, though

pricing floor. new rules for international carbon markets under Article 6 of the
Paris Agreement provide clarity that may enable future growth.

• Some countries have moved toward the adoption of international

climate clubs, including the proposed United States (US)-EU
Carbon-Based Sectoral Arrangement on Steel and Aluminum Trade.

• These approaches can fortify domestic support, prevent carbon

leakage, and encourage mitigation beyond national borders.

DIVERSE PURCHASER PREFERENCES NEW FINANCIAL SERVICES,

MAKE MARKET GROWTH UNEVEN TECHNOLOGIES, AND GOVERNANCE
FRAMEWORKS ARE SHAPING CARBON
MARKETS
• Nature-based credits are in especially high demand: Forestry and
land use transactions more than doubled between 2020 and 2021.
• Financial actors are becoming more active in the carbon market,
while blockchain has enabled a new wave of decentralized
• Increasing demand for carbon removals has resulted in price
financial innovations that show the technology’s potential but
increases for these credits.
have reignited some long-standing concerns about transparency
and quality.
• The voluntary carbon market continues to be strongly diverse,
with purchasers placing widely different values on characteristics
• Diverse governance frameworks are emerging from stakeholders
such as sector, geography, and perceived co-benefits.
and institutions that aim to address concerns regarding the
integrity of carbon credits and how companies use them.

• New rules on Article 6 increase certainty while also adding

complexity to carbon credit markets and may lead to increasingly
divergent approaches emerging across actors and geographies.

FOREWORD SUMMARY CHAPTER 1 CHAPTER 2 CHAPTER 3 ANNEXES 10

Chapter 1 1.1 DRIVING TRANSFORMATION AND SHAPING ECONOMIC
RECOVERY

Introduction The past year has seen efforts to tackle the climate crisis gather steam, as its effects
become more severe and the challenge it presents moves closer to the top of political
agendas.

The Intergovernmental Panel on Climate Change’s latest report, its Sixth Assessment
Report, painted a stark picture of the impacts already being felt, including loss of
life, humanitarian crises, and irreversible damage to ecosystems.1 It highlighted
the impact of every additional increment of global warming, such as the major
difference between restricting the temperature rise to 1.5°C instead of 2°C. According
to the report, global emissions would need to fall by 43% by 2030 in order to limit
temperatures rising to 1.5°C.2 This would require rapid emissions reductions across all
economic sectors. Despite this, emissions continued to rise in the decade up to 2019.

In late 2021, world leaders met in Glasgow for what was billed as the most important
climate conference since the Paris Agreement was adopted in 2015. The conference
achieved significant outcomes, including agreements to phase down coal power and
remove inefficient fossil fuel subsidies, as well as finalizing rules on international
carbon markets. Coalitions of countries announced greater action on forests,
methane, and climate finance. Nevertheless, combined nationally determined
contributions (NDCs) as they stand today would, if fully implemented, still lead to
2.4°C of warming,3 and the Glasgow Pact called on countries to update their targets
by the 27th session of the Conference of the Parties to the United Nations Framework
Convention on Climate Change (UNFCCC),i due to take place in November 2022. An
analysis of NDCs, longer-term net zero targets, and global initiatives such as the
Global Methane Pledge painted a slightly more positive picture indicating they would,
if implemented in full and on time, amount to 1.8°C of warming, bringing them closer
to Glasgow’s goal of “keeping 1.5 [degrees] alive.”4

While increasing the ambition of NDCs and net zero pledges is a key part of the
picture, delivering on them is even more crucial. Analysis by the International Energy
Agency indicates a significant gap between what countries have pledged and what
existing policies can achieve.5 The Intergovernmental Panel on Climate Change’s
latest report similarly confirms that many countries would need additional policies
to meet their own NDC targets.6 And while emissions briefly decreased during the
COVID-19 pandemic, energy demand has bounced back to pre-pandemic levels and
global energy-related emissions rose to a record high in 2021.7

i The 2022 United Nations Climate Change Conference, more commonly referred to as COP27.

FOREWORD SUMMARY CHAPTER 1 CHAPTER 2 CHAPTER 3 ANNEXES 11

The current state of carbon pricing clearly reflects the gap between policies and 1.2 WHAT IS CARBON PRICING?
pledges. While carbon prices reached record highs across a number of ETSs and
carbon taxes over the past year, the majority of carbon prices remain significantly Carbon pricing is a cost-effective policy tool that governments can use as part of
below what is needed to achieve net zero by 2050 and meet the goals of the Paris their broader climate strategy.8 A price is placed on greenhouse gas emissions, which
Agreement.ii Greater carbon pricing ambition can play a crucial role in closing the creates a financial incentive to reduce those emissions or enhance removals. By
policy gap when part of a comprehensive climate policy package and grounded in incorporating climate change costs into economic decision-making, carbon pricing
robust long-term strategies. An increasing interest in cross-border carbon pricing can help encourage changes in production, consumption, and investment patterns,
policies reflects attempts to realize such ambition while addressing concerns related thereby underpinning low-carbon growth.9
to economic competitiveness and carbon leakage.
CPIs are aimed at addressing price barriers to low-carbon development, but these are
Adopting ambitious carbon prices remains politically challenging, particularly in the often not the only type of barrier that should be addressed for effective climate policy.
context of rising energy commodity prices and continued pressure on economies As such, CPIs typically need to be complemented and enhanced by other types of
from the ongoing COVID-19 pandemic. Developing and maintaining carbon pricing policies that address a broader set of climate change challenges and market failures.
approaches in this context requires a strong emphasis on ensuring carbon pricing is These may include research and development, sector-specific regulations, investment
fair, inclusive, and well communicated. At the same time, high energy commodity in technologies and infrastructure, removal of regulatory barriers, and market
prices coupled with current geopolitical tensions may also provide an additional reforms to enable incentive-based approaches. Additional measures may also be
incentive for governments to speed up their transition to alternative energy needed to mitigate unwanted effects of climate policies on specific sectors or groups
sources. Moreover, recent research highlights that environmental taxes can be less in society.
distortionary than other taxes, particularly in times of economic recovery.iii
Governments can price carbon using a variety of policy instruments, which can all
The private sector, meanwhile, has seen a sharp rise in voluntary mitigation be tailored to domestic circumstances, priorities, and needs. The climate impact of
targets, many of which rely to at least some extent on using carbon credits. This carbon pricing depends on how broadly the price is applied, the price level, and the
has contributed to record issuances, trades, and prices, though it has also triggered availability of abatement opportunities. Economy-wide carbon pricing policies are
increased scrutiny. A growing number of initiatives are emerging to assess ambition more effective than carbon prices restricted to certain sectors or goods and higher
in voluntary pledges and carbon credit quality. In addition, international carbon carbon prices incentivize greater emission reductions.iv Creating a credible and more
market rules set at COP26 provide flexibility to countries to authorize international predictable price signal over the longer term will support long-term investments and
transfers of credits from voluntary carbon projects. Host countries that opt to require incentivize low-carbon development.
such authorization will in turn apply a corresponding adjustment for such transfers,
which must be reflected in their NDC reporting emissions balance. These factors are
likely to lead to increasing heterogeneity in the voluntary carbon market as buyers
place different values on host country authorization as well as credit quality. The
adoption of international carbon trading rules also provides a framework for greater
intergovernmental carbon trading, although the potential demand for such trading is
uncertain.

ii The Report of the High-Level Commission on Carbon Prices indicates that the carbon price needs to be in the USD 50-100/tCO2e range by 2030 to keep global heating to 2°C.
iii World Bank research in 75 countries indicates that, on the whole, higher environmental taxes do not lead to reduced employment in times of economic recovery, though they may have some impact in times of
recession. This is in contrast to personal income tax increases, which have been shown to reduce employment during both recessions and recoveries. World Bank (April, 2021). Regime-Dependent Environmental
Tax Multipliers: Evidence from 75 Countries.
iv Consumer responses require market frameworks that allow carbon costs to be passed through the supply chain or the inclusion of CPI design adjustments to improve the operation of a carbon price under
regulated market settings. Further, other policies and investments (for example, public transport infrastructure) are often also needed improve the ability of consumers to respond to higher prices by switching to
lower-emission alternatives.

FOREWORD SUMMARY CHAPTER 1 CHAPTER 2 CHAPTER 3 ANNEXES 12

 Carbon pricing instruments can broadly be grouped into two categories: direct and
BOX 1 indirect carbon pricing.

Direct carbon pricing instruments Direct carbon pricing (Box 1) refers to CPIs that apply a price incentive directly
A carbon tax is a policy instrument through which a government levies a proportional to the greenhouse gas emissions generated by a given product or
fee on GHG emissions, providing a financial incentive to lower emissions. activity, primarily through a carbon tax or an ETS. By applying the same price per
Under a carbon tax, the price of carbon is set by the government, and the metric ton of carbon dioxide (CO2) across multiple sources, direct carbon pricing
market determines the level of emission reductions incentivized by the ensures that abatement incentives are consistent and cost-effective.v Carbon crediting
price. mechanisms are another form of carbon pricing, and are included in the scope of
this report, but operate differently from ETSs and carbon taxes. Participation in
An emissions trading system involves placing a limit or cap on the total crediting mechanisms is generally voluntary, and unlike carbon taxes and ETSs, these
volume of GHG emissions in one or more sectors of the economy. A mechanisms do not in themselves create a broad-based carbon price. Instead, they
government then auctions or distributes tradable emission allowances to offer a subsidy to emissions abatement among selected eligible activities. Crediting
entities covered by the cap, where each allowance represents the right to mechanisms function in concert with initiatives that create demand for emission-
emit a certain volume of emissions (typically a metric ton of carbon dioxide reducing activities at either the domestic or the international level.vi
equivalent), and the total volume of allowances equals the emissions cap.
Covered entities are required to surrender allowances for their emissions Indirect carbon pricing refers to instruments that change the price of products
during a compliance period. They can choose to buy additional allowances associated with carbon emissions in ways that are not directly proportional to those
if necessary or sell surplus allowances. This policy type is also known as a emissions. These instruments provide a carbon price signal, even though they are
“cap-and-trade” system. often (primarily) adopted for other socioeconomic objectives, such as raising revenues
or addressing air pollution.10 Examples of indirect carbon pricing include fuel and
Alternatively, an ETS may use a “baseline-and-credit” system, where there commodity taxes, as well as fuel subsidies affecting energy consumers. For example,
is no fixed limit on total emissions per sector, but covered entities can fuel excise taxes that apply a flat tax amount to gasoline by the liter indirectly place
“earn” emission credits if they produce fewer emissions than the baseline. a price on the carbon emissions from the combustion of that gasoline. Inversely,
These credits can then be traded with covered entities that need additional fuel subsidies that reduce the price of fossil fuels create a “negative” indirect carbon
credits to cover their surplus emissions relative to the baseline. Examples price signal, which incentivizes higher consumption and therefore increases carbon
of these systems include intensity standards and tradable performance emissions. All policy instruments that focus on the price incentive for using fuels
standards. and commodities can be considered indirect carbon prices. However, regulations and
investment incentives—which may address non-price related market failures but do
In an ETS, the price of carbon is not fixed by a government but determined not translate into a price equivalent—are not considered indirect carbon pricing.vii
by the supply and demand of emission allowances or credits.

Carbon crediting mechanism refers to a system where tradable credits

v A number of jurisdictions, including in Argentina, Mexico, and most recently Uruguay, have
(typically representing a metric ton of carbon dioxide equivalent) are introduced carbon taxes but these instruments have been implemented with varying tax rates
generated through voluntarily implemented emission reduction or removal (per metric ton CO2) across fuels. Therefore, while these policies are called “carbon taxes” and
have been historically included within the State and Trends Reports, they meet the definition for
activities. Carbon crediting mechanisms operate differently to carbon taxes indirect taxes and provide incentives akin to traditional fuel taxes.
and ETSs—rather than requiring businesses to pay for emitting (i.e., the vi For instance, crediting mechanisms can provide additional flexibility to ETSs and taxes by
polluter pays principle), businesses and other organizations can generate expanding mitigation options for those regions and/or sectors covered directly.
vii Other policy instruments and investments (for example, public transport, power transmission
carbon credits (and hence revenue) by demonstrating that emissions have
infrastructure) are crucial to complement carbon pricing and to further enable consumers to
been reduced or sequestered relative to a counterfactual baseline. respond to higher prices by switching to lower-emission alternatives. These policies directly and
indirectly lead to emission reductions and decarbonization. However, classifying the instruments
primarily aimed at addressing other aspects of climate action as indirect carbon pricing would
blur important distinctions that are essential for designing smart policy mixes. Accordingly,
indirect carbon pricing is assumed to be limited to those instruments which advance the original
purpose of carbon pricing (i.e., addressing pricing market failures).

FOREWORD SUMMARY CHAPTER 1 CHAPTER 2 CHAPTER 3 ANNEXES 13

The State and Trends of Carbon Pricing report has traditionally focused on direct structural reforms and public investments, are not easily translated into carbon price
carbon pricing and the 2022 edition continues this approach. However, indirect equivalents. Carbon price indicators measure progress on the price element of climate
carbon pricing also influences production, consumption, and investment decisions. action and should not be misconstrued as an indicator of overall climate ambition.
Thus it is valuable to consider both direct and indirect pricing instruments to
better understand the progress toward reflecting the social costs of greenhouse gas
emissions in market prices. Direct and indirect carbon prices interact globally and in
specific jurisdictions. This means, for example, the price signal provided by a direct
carbon price would be diluted if it were offset by an effective decrease to indirect
carbon pricing, such as through the introduction of a subsidy that reduced fuel prices.
An integrated view of a country’s direct and indirect CPIs will allow policymakers
to assess the landscape of incentives and what new instruments might work to
achieve vital climate change goals. Several institutions, including the World Bank, are
exploring avenues to present more data on indirect pricing and give better visibility of
how different pricing incentives apply and interact in coming years.

Direct carbon pricing systems (through carbon taxes and ETSs) have, to date, largely
been concentrated in high- and middle-income countries. Indirect carbon pricing
systems, such as fuel excise systems, are more commonly implemented than direct
carbon pricing, including in many developing countries. Thus, measuring indirect
carbon prices is particularly useful for understanding the state of play and progress
in many developing countries. In Africa, for example, some countries have achieved
major increases in indirect carbon prices through fuel tax and subsidy reforms.

Agreement was reached at COP26 to phase down inefficient fossil fuel subsidies. This
is a significant milestone and it is the first time such an approach has been included
in a global agreement. Actions to wind down negative indirect carbon pricing could
potentially be seen as early steps toward reaching a global carbon pricing agreement.

Public officials are often cautious about implementing direct carbon pricing if
their country has never had such measures. It can feel new and complex. But most
countries already have decades of experience with introducing fuel excise taxes and
phasing out subsidies on fuels and commodities and are familiar with the design,
administration, and challenges of such reforms. Measuring the indirect carbon price
from these systems can promote familiarity with the concept of carbon pricing and
can help policymakers better understand the potential impacts from introducing a
direct carbon price.

Even cross-country comparisons of overall or “effective” carbon prices that include

both direct and indirect pricing tools do not provide perfect insight into relative
climate effort or ambition levels. Other dimensions of climate action, such as

FOREWORD SUMMARY CHAPTER 1 CHAPTER 2 CHAPTER 3 ANNEXES 14

Chapter 2 Following years of limited growth, carbon prices rose quickly in 2021. Prices in

Carbon
carbon taxes and ETSs alike hit record levels across multiple jurisdictions, driven by
more ambitious climate policies, as well as broader economic factors such as global
energy commodity prices. The rapid rise in ETS carbon prices, in conjunction with the
operation of new ETSs, has seen ETS revenue surge, surpassing carbon tax revenue

taxes and
for the first time. However, prices in most jurisdictions remain below what is needed
to meet the goals of the Paris Agreement and “keep 1.5 [degrees] alive.” With few new
instruments or sector expansions this year, the global coverage of carbon pricing

emissions
increased only marginally in the year leading up to April 2022, following major
changes in the previous two years. Meanwhile, jurisdictions are increasingly looking
toward cross-border policies and initiatives that enable higher carbon prices while

trading
ensuring the continued competitiveness of their economies.

2.1 ADOPTION OF DIRECT CARBON PRICING CONTINUES BUT

systems
GLOBAL COVERAGE REMAINS LOW

The past year saw fewer changes in the volume of global emissions covered by direct carbon
prices than previous years and a greater focus by major emitters on consolidating their
existing instruments. However, various countries are considering new CPIs.

As of April 2022, there are 68 CPIs operating with three more scheduled for
implementation. This includes 37 carbon taxes and 34 ETSs (see Figure 1). A new carbon tax
in Uruguay commenced in January 2022 and three new ETSs also commenced in the past
year in subnational jurisdictions in North America—Oregon, New Brunswick, and Ontario.
One US state, Washington, as well as Indonesia and Austria, have CPIs scheduled for
implementation. Approximately 23% of total global GHG emissions are currently covered by
operating CPIs (see Figure 2), which is similar to global coverage in 2021 (see Box 2).

While there have only been four new CPIs implemented since last year’s State and
Trends report, more jurisdictions took steps toward implementing or expanding
carbon pricing. In addition to the instruments scheduled for introduction (i.e., in
Austria, Indonesia, and Washington State), Israel, Malaysia, and Botswana announced
their intentions to develop new CPIs and Vietnam outlined steps to set up an ETS. A
number of other jurisdictions in Africa, Central Europe, and Asia continue to assess the
potential to implement CPIs.

FOREWORD SUMMARY CHAPTER 1 CHAPTER 2 CHAPTER 3 ANNEXES 15

 FIGURE 1
Map of carbon taxes and ETSs
Sweden
Norway
Denmark Finland
Germany
Netherlands
Belgium Estonia
UK Latvia
Canada Lithuania
Ireland
Poland
Luxembourg Ukraine
EU Liechtenstein
France
Romania
Iceland Republic of Korea Catalonia Bulgaria
Kazakhstan
Portugal Spain Italy
Sakhalin
Washington Switzerland
Oregon Austria Greece
Japan Slovenia
Massachusetts
Hungary
California Pennsylvania Turkey Serbia
China
Pakistan Montenegro
Baja California
Morocco Israel

Zacatecas Tamaulipas

Hawaii Shenyang
Jalisco Thailand Vietnam Beijing
Mexico Senegal

Malaysia
Brunei Tianjin
Colombia Tokyo
Côte d’Ivoire Singapore
Hubei Saitama
Northwest Territories
Shanghai
Brazil Indonesia Chongqing
Fujian
Botswana
Taiwan, China

Shenzhen
British Columbia Chile Guangdong (except Shenzhen)

Alberta Newfoundland
and Labrador Uruguay South Africa
Saskatchewan Ontario Québec
Argentina
Manitoba
Prince Edward Island
RGGI
Nova Scotia New Zealand
TCI
New Brunswick

ETS implemented or scheduled for implementation ETS implemented or scheduled, carbon tax under consideration
Carbon tax implemented or scheduled for implementation Carbon tax implemented or scheduled, ETS under consideration
ETS and carbon tax implemented or scheduled ETS or carbon tax under consideration

Carbon pricing initiatives are considered “scheduled for implementation” once they have been formally adopted through legislation and have an official, planned
start date. Carbon pricing initiatives are considered “under consideration” if the government has announced its intention to work towards the implementation of a
carbon pricing initiative and this has been formally confirmed by official government sources. TCI refers to Transportation and Climate Initiative. RGGI refers to the
Regional Greenhouse Gas Initiative.

FOREWORD SUMMARY CHAPTER 1 CHAPTER 2 CHAPTER 3 ANNEXES 16

FIGURE 2
Share of global GHG emissions covered by carbon pricing instruments

25% 64 68
Ontario Emissions Performance Standards (0.08%)
Oregon ETS (0.05%)
Uruguay CO2 tax (0.01%)
20%
New Brunswick ETS (0.01%)

15%
55 58

45
38 40 43
Share of global GHG emissions

Number of carbon pricing

mechanisms in operation
36
10% 31

23

9 10 15 16 19 21
5%

4 5 6 7 8
2
0%
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
FOREWORD SUMMARY CHAPTER 1 CHAPTER 2 CHAPTER 3 ANNEXES 17
BOX 2 China hosts the world’s largest carbon market by emissions, and 2021 saw its
national ETS complete the first full compliance cycle, with a reported compliance
Revisions to global GHG coverage estimates in this rate of 99.5%. Over 2,100 liable power stations participated during this cycle,
year’s report covering about 4.5 billion metric tons of CO2 equivalent (tCO2e) per year—over 30%
of China’s total GHG emissions. While the prices for emissions allowances remain
Each year the State and Trends of Carbon Pricing report estimates the relatively low compared to other pricing systems, the closing price for the year of
proportion of global GHG emissions covered by a direct carbon price. This 54.2 yuan (USD 8.5) per metric ton of CO2 (tCO2) translated to an increase of around
estimate is intended to help track the progress of uptake and coverage of 13% over the six months since trading commenced. A total of 179 million tCO2e of
direct carbon pricing. It is underpinned by three main components: GHG allowances were traded in 2021, representing a cumulative turnover of close to 7.7
emissions in a jurisdiction, the proportion of a jurisdiction’s emissions billion yuan (USD 1.2 billion).12 While this represents relatively low volumes for a
covered by a carbon price, and the potential overlap in a jurisdiction market the size of the Chinese ETS, it is not insignificant given the Chinese ETS is
covered by multiple CPIs. still taking key phase-in steps—compliance trading only commenced in earnest in
October 2021 and currently only covered entities (i.e., not financial institutions) are
To promote consistency across jurisdictions, country GHG emissions allowed to make trades.13 While the overall compliance rate for the scheme is reported
are taken from the Emissions Database for Global Atmospheric Research to be 99.5%, there have also been important challenges, with the Ministry of Ecology
(EDGAR) (https://edgar.jrc.ec.europa.eu/). The EDGAR database is updated and Environment confirming several firms had falsified emissions data.14
every few years. The current report uses the most recent EDGAR GHG
estimates (version 6.0), which were released in October 2021 and refer to The largest carbon market by traded value, the EU ETS, saw record trading activity
2018 emission values; version 5.0 only included up to 2015. The most recent and prices in both spot and futures markets. Over 15 billion emission allowances
update to the EDGAR database reflects updated methodologies and revised were traded on the Intercontinental Exchange, the largest secondary market platform
activity data, including updated data from the International Energy Agency for EU allowances, with spot prices increasing almost threefold over the calendar
and the Food and Agriculture Organization. 11
year. The EU Climate Law entered into force in July 2021, which set the binding new
EU-wide climate target to reduce GHG emissions by 55% in 2030 compared to 1990
The estimate for the proportion of global emissions covered in the State levels and achieve net zero emissions by 2050. The package of measures that has
and Trends of Carbon Pricing report 2021 was 21.5%. Incorporating up- been proposed to meet the new commitment (known as “Fit for 55”) includes the
to-date EDGAR GHG emission values, combined with revisions to the addition of a new, separate ETS covering transport and buildings. This would exist
estimates of covered emissions, particularly for the Chinese national in parallel to the existing EU ETS, which covers the power, industry, and aviation
ETS, have resulted in a minor recalibration of the coverage estimate. sectors, though it would share some common elements, such as the market stability
This year’s estimate indicates approximately 23% of goal emissions are reserve (MSR). The proposed package of measures would also extend the scope of the
covered by a CPI in operation. Around 0.2% of the reported increase since existing EU ETS to include shipping emissions beginning in 2023 and covering 100%
2021 occurred because of additional coverage from the four new carbon of emissions for voyages between member state ports and 50% for voyages between
pricing instruments (in Uruguay, New Brunswick, Ontario, and Oregon). EU ports and third-country ports by 2026.15 The EU legislature is currently debating
The remainder of the increase is due to other factors, such as fluctuations these proposals; the presidency for the Environment Council meeting in March 2022
in GHG emission estimates, revisions to GHG emissions data, and refined indicated that the proposal to include shipping has broad support but the proposal
coverage assumptions in specific jurisdictions. to include transport and buildings has generated significant debate among member
states and in the EU Parliament.16

FOREWORD SUMMARY CHAPTER 1 CHAPTER 2 CHAPTER 3 ANNEXES 18

 FIGURE 3
Absolute emissions coverage, share of emissions covered, and prices for CPIs across jurisdictions

Carbon tax
ETS

Uruguay*
Carbon price USD/tCO2e

140
Switzerland Sweden Liechtenstein

120

United Kingdom
EU ETS
100

Norway*

Finland*
80

Switzerland

60
France New Zealand

Netherlands Ireland* Canada**

Luxembourg*

40 China National ETS Iceland

Denmark*
Germany
United Kingdom

Spain Portugal Slovenia

20 RGGI
Rep. of Korea Japan
Latvia
Mexico*
Colombia Chile South Africa
Argentina*
Poland Ukraine Singapore
Kazakhstan
0
0% 20% 40% 60% 80%

Share of GHG emissions covered in the jurisdiction

Bubble size represents absolute covered total greenhouse gas emissions.

*For CPIs that have multiple price levels, the price applying to the larger share of emissions is used.

**This is a composite presentation representing total emissions covered by carbon pricing instruments under the Pan-Canadian Framework. It includes a
combination of ETS-like and carbon tax-like instruments, implemented at both provincial and federal levels.

FOREWORD SUMMARY CHAPTER 1 CHAPTER 2 CHAPTER 3 ANNEXES 19

The International Maritime Organization is currently considering market-based highs witnessed in early 2020 before the COVID-19 pandemic, driven by improved
measures, including carbon pricing, to reduce GHG emissions from international market sentiment as a result of higher global carbon prices and improved domestic
shipping. In 2018, the International Maritime Organization committed to halve GHG ambition set out in the Republic of Korea’s enhanced NDC and the passage of a carbon
emissions from international shipping relative to 2008 levels by 2050 through a neutrality law.
combination of measures. The current focus of negotiations is midterm measures, for
which several market-based measures have already been proposed, including a carbon Sharp price drops were recorded in several systems in early 2022, though prices have
levy and a cap-and-trade system. The carbon levy would be applied to bunker fuels, since begun to recover. Prices in the EU ETS, the New Zealand ETS, the UK ETS, and the
starting at USD 100/tCO2e from 2025 with upward ratchets on a five-year review cycle. 17
Republic of Korea ETS saw dramatic falls following the invasion of Ukraine in February.
The cap-and-trade system would be combined with a fuel GHG limit, the latter of Prices in all four systems have since begun to recover but they remain below the heights
which would act as a command-and-control measure. Industry stakeholders, such as
18
recorded before the war.
the International Chamber of Shipping, shipping’s largest trade association,19 a major
charterer,20 and various maritime think tanks,21 have expressed their support for a The role of price and supply adjustment mechanisms has gained more prominence
market-based approach and outlined their own ideas for carbon pricing in international in the context of rising prices. While California allowance auction prices hovered
shipping. At COP26, the Climate Vulnerable Forum presented the Dhaka-Glasgow around the floor price for years, prices began to take off in August 2021 and an
Declaration, with about 50 developing countries calling for a mandatory GHG levy on increase in the floor price was introduced in 2022. In February 2022, the California
bunker fuels to be adopted by International Maritime Organization member states. 22
allowance auction price was still 48% above the new floor price. In the New Zealand
Potential carbon revenues are deemed significant, with estimates of the total by 2050 ETS, the price cap was removed in 2021, along with an increase in the floor price and
being between USD 1 trillion and USD 3.7 trillion, or USD 40-60 billion annually. the implementation of a cost containment reserve (CCR) threshold.ix The old and new
Strategically using these carbon revenues could become key to accelerating shipping’s CCR thresholds were exceeded in September 202124 and March 2022,25 resulting in the
decarbonization and ensuring an equitable transition toward zero-carbon shipping release of an additional 12.7 million units. UK ETS prices also reached CCR levels in
among countries. 23
December 202126 and January 2022,27 but the UK ETS authority decided not to issue
additional units. Finally, EU legislators are currently considering proposals from the
European Commission to reform the EU ETS, which include proposals to strengthen

2.2 CARBON PRICES ARE RISING BUT ARE GENERALLY TOO the Market Stability Reserve (MSR) by increasing the number of allowances that are
drawn from the market into the reserve each year.
LOW
Carbon tax rates also increased during 2021 and in the beginning of 2022, albeit by
Direct carbon prices have reached record levels across multiple jurisdictions over the less than ETS prices. While carbon tax rates remained relatively flat in 2020, they
past year, driven by a combination of policy decisions, increased speculation, and increased by an average of roughly USD 6/tCO2e in 2021, and by an additional
broader economic trends, in particular global energy prices. However, prices in most USD 5/tCO2e as of April 1, 2022, with most carbon tax jurisdictions increasing their
jurisdictions remain below what is needed to meet the Paris Agreement’s goals. carbon tax rates compared to the previous year. Several jurisdictions observed their
highest domestic carbon tax rates, including British Columbia and other Canadian
Direct carbon prices rallied to all-time highs in several systems in 2021. The provinces, Ireland, Latvia, Liechtenstein, South Africa, Switzerland, and Ukraine (see
largest share of this growth has been seen in ETSs (particularly those in advanced Figure 5).
economies), where prices react to market conditions (see Figure 4). Record prices
were seen in the linked EU and Swiss ETS markets, the linked California and Québec
markets, the Regional Greenhouse Gas Initiative (RGGI), and the New Zealand ETS.
Prices in the UK ETS have also increased significantly since its launch in mid-2021.
In the China ETS, prices recovered in early 2022 following a dip in late 2021. In the
ix Floor price in the NZ ETS increased from NZD 20 to NZD 30 in 2022, increasing toward NZD 39 in
Republic of Korea, as of February 2022 prices were edging back toward the record 2026; and CCR threshold increased from NZD 51 to NZD 70, increasing toward NZD 110 in 2026.

FOREWORD SUMMARY CHAPTER 1 CHAPTER 2 CHAPTER 3 ANNEXES 20

FIGURE 4
Price evolution in select ETSs from 2008 to 2021viii

120
Carbon price (USD/tCO2e)

100 WHO declares public health emergency in New Zealand Russia invades Ukraine
response to COVID-19 virus abolishes price cap

EU ETS

80

2008 Financial Black Monday stock EU ETS Reforms EU 55% target Rep of Korea proposes more
crisis market crash, 2011 agreed agreed ambitious emissions target
60

NZ ETS

40

California Cap-and-Trade

20 Rep. of Korea ETS

RGGI

0
2008 2010 2012 2014 2016 2018 2020 2022

viii Based on data from ICAP Allowance Price Explorer.

FOREWORD SUMMARY CHAPTER 1 CHAPTER 2 CHAPTER 3 ANNEXES 21

Most of the observed price increases are due to previously scheduled changes, such The COVID-19 pandemic did not have a major impact on prices and ambition.
x xi
as in the Canadian provinces and Ireland. In other cases, the revised rate was part Analysis of changes to carbon prices in Organisation for Economic Co-operation and
xii xiii
of a broader fiscal reform, as in Norway and Ukraine. Finally, Switzerland and Development and Group of 20 (G20) countries from the beginning of the pandemic
Liechtenstein’s 2022 rate increase from CHF 96/tCO2 (USD 101/tCO2) in 2021 to CHF up to August 2021 indicates that the majority of changes adopted were likely to lead
120/tCO2 (USD 130/tCO2) stands out, as it was triggered by the automatic adjustment to overall positive climate impacts.31 While most of these were planned before the
mechanism that raises the rate whenever intermediate GHG targets in the CO2 law are pandemic, it is notable that most governments did not roll back or delay introducing
not met. these changes due to the health crisis. Many governments did, however, introduce
measures likely to lead to overall negative climate impacts, including increasing fossil
Several jurisdictions have also established more ambitious price trajectories for the fuel subsidies and suspending aviation taxes.
coming years. For instance, Singapore proposed to progressively increase the carbon
tax rate (currently SGD 5) to SGD 25 (USD 18)/tCO2e in 2024 and 2025, and SGD 45 In addition to actual policy shifts, demand from participants and speculators
(USD 33)/tCO2e in 2026 and 2027, with a view to reaching SGD 50-80 (USD 37-59)/ alike betting on prices increasing further has driven rising ETS prices. In some
tCO2e by 2030. The government of South Africa has also announced a proposal to cases, specific developments create this expectation, such as the 2021 publication
increase the carbon tax rate from the current level of just under USD 10/tCO2e to reach of recommendations by the New Zealand governmental advisory body the Climate
USD 20/tCO2e by 2026, USD 30/tCO2e by 2030 and USD 120/tCO2e, beyond 2050. These Change Commission, which were expected to lead to the government further
increases follow on last year’s announcement by Canada to increase minimum carbon tightening the ETS.32 Similarly, investors anticipated that the Republic of Korea would
prices by CAD 15 (USD 12)/tCO2e annually such that it will reach or exceed CAD 170 pause the use of international offsets in its ETS in 2021 and adopt a more ambitious
(USD 136)/tCO2e by 2030. While jurisdictions have and will continue to announce and climate target.33 The broader pressure on jurisdictions to adopt more ambitious
schedule increases to carbon tax rates, jurisdictions’ reaction to energy commodity mitigation targets, as collective commitments continue to fall short of what is needed
price spikes, accelerated by the war in Ukraine, may influence the timing. As of April to meet the Paris Agreement’s temperature goals, may also play a role.
2022, Indonesia had announced it will delay the introduction of its carbon tax due to
the economic impact of high energy prices28 and Mexico announced exemptions to the Opening up ETS markets to non-liable entities can influence prices and market
carbon tax applied to gasoline and diesel. 29
dynamics (see Box 3). Investment firms purchasing credits with the hope of turning
a profit on their resale have at least partially driven recent price increases in the
Spikes in ETS prices have been driven by more ambitious climate targets and California-Québec market.34,35 Record prices in the RGGI in the United States have also
tightened ETS rules. Recent price increases in the EU ETS have coincided with several coincided with increased participation by speculators.36
significant policy changes and proposals, beginning with the temporary removal of
900 million allowances from the market in 2018 and, more recently, the 2021 decision
to increase the 2030 mitigation target and the publication of proposals to tighten the
ETS cap, among other reforms. In New Zealand, prices rose sharply after it abolished
the “fixed-price option” (which allowed participants to pay a fixed price of NZD 35
(USD 24) instead of surrendering allowances) in June 2021. Prices in the Republic of
Korea ETS spiked sharply in June 2021 as the government proposed a tightening of
the country’s 2030 emissions target.30

x The Pan-Canadian Framework on Clean Growth and Climate Change established price benchmarks for provinces starting at CAD 10/tCO2 in 2018 increasing annually at CAD 10/tCO2, to reach CAD 50/tCO2 in
2022.
xi Ireland Finance Act stipulates a yearly carbon tax rate increase of GBP 7.50/tCO2 in 2021-2029 and an increase of GBP 6.50/tCO2 in 2030.
xii In December 2021 Norway announced an increase of 28% reaching NOK 766/tCO2 (USD 87/tCO2) in 2022.
xiii In November 2021, Ukraine announced a threefold tax rate increase to UAH 30/tCO2 (USD 1/tCO2) for 2022.

FOREWORD SUMMARY CHAPTER 1 CHAPTER 2 CHAPTER 3 ANNEXES 22

FIGURE 5
Record high carbon tax rates in six jurisdictions

140
Carbon price (USD/tCO2e)

Canada
Switzerland
120

Ireland
100

80

60

40 Singapore**
British Columbia***
South Africa*
20
Latvia

Ukraine
0
2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030

Dotted line indicates scheduled price increases for those jurisdictions that have communicated future price trajectories.

*Estimated path based on the government's ambition to increase the tax rate by at least USD 1 per year, and to increase the rate more rapidly from 2026 to reach USD
30/tCO2e in 2030 and USD 120/tCO2e beyond 2050.

**This is a low range projection as the Singapore government plans to reach a carbon tax rate of SGD 50-80/tCO2e (36-58 USD/tCO2e) by 2030.

***British Columbia has committed to meet or exceed the federal benchmark carbon price.

FOREWORD SUMMARY CHAPTER 1 CHAPTER 2 CHAPTER 3 ANNEXES 23

BOX 3 As prices have reached record highs in the EU market, the role of speculation is
coming under close political scrutiny. Financial entities have long played a role in
The role of the financial sector in emissions trading the EU ETS but this has increased in recent years as more investment firms have
A number of markets, including the linked EU-Swiss market, the entered the market amid rapid price growth, triggering concerns about a possible
California-Québec market, the New Zealand ETS, RGGI, and (more recently) “carbon bubble.”37 The European Securities and Markets Authority found no evidence
the Republic of Korea ETS, permit nonparticipants to trade in emissions of insider trading or similar activities in either a preliminary report in late 2021 or
allowances and often also in financial instruments derived from them. an in-depth analysis in March 2022, but it set out a number of recommendations
Opening markets up to more actors can increase liquidity, which can enable to improve transparency and oversight in the market.38 Despite this, EU lawmakers
a clearer price signal. However, it can also increase the risk of market have signaled they will take measures to address possible manipulation as part of
manipulation. upcoming ETS reforms,39 and some have gone so far as to propose limiting trading to
cover participants and those trading on their behalf.40
Nonparticipants typically include brokers and traders who purchase
credits with the intention to on-sell in the short term and banks that Conversely, some jurisdictions are hoping that opening trading to financial players
help companies covered by the ETS to hedge their exposure to price will provide much-needed liquidity to the market. In 2021, the Republic of Korea
developments. Increasingly, however, investors looking to buy and hold opened trading to a limited number of financial entities with a view to increasing
credits in anticipation of future price increases are entering the market. liquidity, which has been lacking in the Korean market over the past years. By
Other investors are buying allowances to diversify their portfolios or to December 2021, 20 financials had entered the market and analysts predict that this
hedge against inflation, as traditional inflation hedges such as oil are will help give the market a liquidity boost once these actors become more acquainted
increasingly unreliable. This has been seen in the EU ETS and in California. with the system.41
Recent years have also seen offerings of exchange-traded funds that invest
in emissions allowances, providing a vehicle for retail investors and even Rising allowance prices come amid strong increases in the prices of other financial
individuals interested in environmental and social governance to participate assets in 2021. Other assets, including real estate, stocks, and cryptocurrency, also
in a market that may not have been previously accessible to them. showed strong growth.xiv Where carbon units (including emission allowances) are
viewed as an investment vehicle, broader factors influencing investor demand (such
as monetary policy and cost of capital) are more likely to affect buying or selling
behavior. These broader trends are examples of the myriad factors that can influence
prices in emissions markets and point to the challenges of determining the precise
factors that have led to a given set of market movements.

Rising gas prices are also likely to have played a role in both pushing allowance
prices upward and contributing to price crashes. This is perhaps most notable in
Europe, where a tripling of natural gas prices amid tightened supply from Russia led
to a larger share of coal in the electricity mix. This put upward pressure on allowance
prices as increasing EU emissions led to higher demand for cap-limited allowances.42

xiv Double digit percentage price increase year-on-year were common through 2021 in real estate
markets across Europe, Asia-Pacific, and North America, and nominal house prices have risen
in almost 90% of countries that have published housing statistics so far (Global Property Guide,
2021). MSCI’s World Index increased its value by 20%, and the total cryptocurrency market cap
increased by almost 200%. Data retrieved from CoinMarketCap. See https://coinmarketcap.com/.

FOREWORD SUMMARY CHAPTER 1 CHAPTER 2 CHAPTER 3 ANNEXES 24

At the same time, sharp price drops following Russia’s invasion of Ukraine may be Carbon pricing alone is unlikely to spur early investment in these decarbonization
partially explained by investors selling emissions allowances in a bid to respond to pathways.50 Policymakers must implement targeted measures including investing in
capital needs generated by rising gas prices. Some analysts have also pointed to gas
43
research, development, and demonstrations, capital and operational subsidies, and
prices as being among the drivers of the record prices recorded in RGGI in late 2021. 44
public support for green hydrogen infrastructure or high-voltage transmission lines
to achieve net zero transformation.
Despite prices increasing across a number of major CPIs in the past year, on the
whole current prices remain short of levels needed to drive the transformative
change needed to reach the 1.5°C target or unlock investment in essential 2.3 CARBON PRICING REVENUES INCREASE SHARPLY,
decarbonization pathways (see Figure 6). The Report of the High-Level Commission
PARTICULARLY FROM ETSs
on Carbon Prices identified a USD 50-100/tCO2e range (or “carbon price corridor”)
as the price needed by 2030 to keep global heating to below 2°C—the upper end of Carbon pricing revenues increased sharply in 2021, driven largely by higher carbon
the limit agreed in the Paris Agreement—as part of a comprehensive climate policy prices, as revenues generated by ETSs surpassed revenue generated by carbon taxes
xv,45
package. But less than 4% of global emissions in 2022 are covered by a direct for the first time.
carbon price at or above the estimated range required by 2030. Further, more recent
estimates indicate even higher prices may be needed to reduce emissions to net zero Global carbon pricing revenue collected in 2021 was around USD 84 billion,
by 2050—which the Intergovernmental Panel on Climate Change says is necessary to representing an increase of over USD 31 billion compared to 2020.xvi As with
meet the 1.5°C goal. A survey of 30 climate economists conducted in 2021 estimates previous increases, higher carbon prices, including in the EU ETS, which accounts
prices of USD 50-250/tCO2e would be needed to meet this goal, with a median for around 41% of all carbon pricing revenue, as well as the New Zealand ETS (which
forecast of USD 100/tCO2e.46 commenced auctioning allowances) and the California Cap-and-Trade Program, drive
the increase in carbon revenue. Two ETSs that began operation in 2021, the UK ETS
Higher prices coupled with a coherent set of complementary policy measures (which includes revenue previously collected under the EU ETS) and the Germany
will be needed across most jurisdictions to achieve both short-term mitigation ETS, together accounted for over 16% of total carbon pricing revenue generated in
goals and long-term net zero strategies. This is particularly the case for driving 2021. It is worth noting that the Chinese national ETS freely allocated all allowances
decarbonization in hard-to-abate sectors where low-carbon approaches are less during 2021. As a result, even though it is the largest ETS in operation (in terms of
developed, particularly expensive, or simply unavailable. Some analysts suggest amount of emissions covered), there was no revenue generated from the Chinese
transformative action in hard-to-abate sectors will require carbon prices on the order national ETS.
of USD 100-170/tCO2e by 2030.47 Such sectors often require technology solutions
involving low-carbon hydrogen and carbon capture and storage, as these options
can compete with traditional technologies and practices only if carbon prices are
very high or other supporting polices are in place.48 Achieving economic break-even
points—through a combination of carbon pricing and technology incentives—would
be a major enabling development for investment in deep decarbonization pathways,
which are increasingly targeted for their importance in “keeping 1.5 alive.”49
Increased technology deployment can trigger a virtuous cycle by driving improved
economies of scale, learning, and further cost reductions.

xv The High-Level Commission’s report argues that a well-designed carbon price is an indispensable part of a strategy for reducing emissions in an efficient way. However, it also emphasizes that carbon pricing
will only be effective when adopted as part of a comprehensive policy package that includes measures to tackle market failures other than the GHG externality.
xvi Note that carbon pricing revenue refers to the amount of revenue collected by governments through direct carbon pricing instruments—that is, from carbon taxes paid or allowances sold through auctions.

FOREWORD SUMMARY CHAPTER 1 CHAPTER 2 CHAPTER 3 ANNEXES 25

FIGURE 6
Carbon prices as of April 1, 2022

140 Carbon tax

Carbon price (USD/tCO2e)
137

ETS
130 130 130

120

General tax rate

Reduced rate for Liquified Petroleum Gas
and natural gas in the greenhouse industry 9-88
100 99
Transport fuels
Other fossil fuels
2030 carbon price corridor*

87
59-85

80

Transport fuels 64
Other fossil fuels
60
37-45
Gasoline 53
Fossil fuels All other fossil fuels 49
F-gases 28-43 46
19-34
Fossil fuels 40 40 40 40 40 40 40 40 40
40
F-gases
22-27 32 33
31 31
26
24 24
20
20 Upper 17 17
19 19

Lower 14 15
13
0.4-3.7 9 9 10
7 7
5 5 5 6
4 4 4
1 1 1 1 2 2
<1
0
Kazakhstan

Mexico

Shanghai

Tamaulipas

Korea
Slovenia

Iceland
Canada

Newfoundland and Labrador

Canada

Newfoundland and Labrador

European Union
Norway
Massachusetts

Fujian

Singapore

Ireland
Netherlands

Liechtenstein

Uruguay
Chile
Colombia

China

Guangdong
RGGI

Prince Edward Island

Portugal

Québec

New Brunswick

New Brunswick

United Kingdom
Shenzhen

Japan

Chongqing

Hubei

South Africa

Latvia

United Kingdom

Germany

Alberta

France
New Zealand

Finland
Poland

Ukraine

Tianjin
Tokyo

Argentina

Beijing

Denmark
California

Northwest Territories

Saskatchewan

Switzerland

Switzerland

Sweden
Spain

British Columbia

British Columbia

Luxembourg
Nominal prices on April 1, 2022 are shown for illustrative purpose only. Prices are not necessarily comparable between CPIs because of (for example) differences in the sectors covered and
allocation methods applied, specific exemptions, and compensation methods.

*The 2030 carbon price corridor is based on the recommendations in the report of the High-Level Commission on Carbon Prices.

**Several jurisdictions apply different carbon tax rates to different sectors or fuels. In these cases, we have indicated the range of tax rates applied, with the dark blue shading showing the
lower rate and the combined dark blue and light blue shading representing the higher rate.

FOREWORD SUMMARY CHAPTER 1 CHAPTER 2 CHAPTER 3 ANNEXES 26

FIGURE 7xvii FIGURE 8
Revenue generated per carbon pricing instrument in 2021 Evolution of global carbon pricing revenues over time

$90 Carbon tax ETS revenues surpass carbon tax

Billion USD
ETS revenues for the first time
$80

land
$70

Ze a

ia
Other
Fra

rn
m
do

Ne w

lifo
nce
ng $60
Ca Ki 67%

Ca
Br na
itish da it ed
Co n $50
lum U
bia
S we $40 49%
d en
Carbon a ny
Japan tax Germ 47% 47%
Norway USD 28bn $30
ETS 34%
Finland USD 56bn
land $20 26%
S witzer
er 51% 33%
Oth $10 66% 53% 53%
74%
$0
2016 2017 2018 2019 2020 2021
European Union

instance environmental or development projects. Revenue from carbon taxes also

tends to be earmarked, although a higher proportion is allocated to consolidated
revenue and, to a lesser extent, redistributed through tax exemptions or direct
For the first time ever, revenues generated by ETSs surpassed revenues generated transfers.51 However, categorizing revenue use has complexities. There is limited
by carbon taxes. While carbon taxes have historically generated more revenues than ability to account for nuances in fiscal policies, such as where revenue use could
ETSs, the gap has narrowed in recent years and in 2021 ETSs generated over two- potentially be assigned to multiple categories or where revenue is in practice set aside
thirds of total revenue (see Figure 7 and Figure 8). This largely reflects the fact that for specific purposes, but not legally earmarked.
ETS prices are rising faster than fixed-price instruments (see section 2.2). A second
factor is the increasing share of auctioned allowances rather than free allocation. A Carbon pricing revenue presents opportunities to support a sustainable recovery,
good example is New Zealand, which ramped up auctioning in 2021 as part of broader or to finance broader fiscal reforms. Reforming existing fuel excise frameworks is a
reforms to its ETS, as well additional revenue from ETSs that began operation in fundamental part of Israel’s proposed carbon tax, and Uruguay’s newly implemented
2021. Data collected by the Institute for Climate Economics indicates that most ETS carbon tax has replaced existing fuel excise charges, with the carbon revenue being
revenue collected in 2020 was earmarked and channeled to specific projects, for allocated to finance policies that promote GHG mitigation and adaptation.

xvii The size of the respective wedges reflects the revenues generated by the relevant instrument(s).

FOREWORD SUMMARY CHAPTER 1 CHAPTER 2 CHAPTER 3 ANNEXES 27

2.4 CROSS-BORDER APPROACHES TO CARBON PRICING ARE The European Union came a step closer to adopting a Carbon Border Adjustment
INCREASINGLY IN THE SPOTLIGHT Mechanism. In July 2021, the European Commission published its much-anticipated
proposal for a CBAM (see Box 4). While not the first such mechanism in existence,xx
Countries are increasingly moving toward cross-border approaches proposed in the EU’s mechanism would be by far the largest. Several jurisdictions, including
academic and policy literature, including border carbon adjustments (BCAs), climate Ukraine,52 Uruguay,53 and Taiwan, China,54 have already cited the CBAM proposal as
clubs, and minimum carbon pricing arrangements. These novel approaches can a driver for their efforts to adopt a direct carbon price. And though several trading
help resolve asymmetrical ambition but raise political and technical challenges, partners have expressed concerns about the mechanism and highlighted the potential
particularly around determining the equivalency of carbon pricing and climate to take legal action or retaliatory measures against the EU, there have as of yet been
policies, more generally. no concrete moves toward either response.55

As countries increase the ambition of their carbon prices and other climate policies, Several other jurisdictions are also pursuing the adoption of BCAs. Canada
carbon leakage xviii
risks present important political concerns. While to date evidence undertook consultations on a border mechanism in the fall of 2021 and in December
of carbon leakage occurring in practice is minimal, it remains an important concern Prime Minister Justin Trudeau mandated the finance minister to develop an approach
for politicians and industry stakeholders. These concerns can be heightened by the to applying a border adjustment to emissions-intensive imports, such as steel,
present context of increasing inflation and rising energy commodity prices. cement, and aluminum.56 In the United Kingdom, a parliamentary committee is
currently exploring the possibility of adopting a border mechanism.57 And in July
Countries are increasingly looking at trade measures as a way to protect against 2021 lawmakers in the United States, which does not have a carbon price, introduced
potential carbon leakage as a result of carbon pricing. Most countries have addressed legislation to apply a carbon tariff to fossil fuel imports, as well as products such as
leakage concerns by providing exemptions, rebates, or free allocation of allowances to aluminum, steel, iron, and cement. However, it is unlikely this proposal will obtain
exposed industries. However, these approaches have drawbacks: reducing the carbon the support it needs to become law.58
cost signal passed through the supply chain can help level the playing field vis-à-
vis foreign products, but it also reduces the incentive to use energy more efficiently BCAs are raising important questions around responsibility for climate action.
or switch to lower-carbon products and processes. In addition, these approaches The principle that countries have common but differentiated responsibilities for
tend to become less effective at managing carbon leakage risks at deeper levels of tackling climate change according to their abilities and historical responsibilities
decarbonization, when embodied emissions need to approach zero. Consequently, has long been enshrined in international climate cooperation. Developing countries
countries are increasingly looking for other ways to even the playing field and have argued that, in unilaterally applying carbon pricing to products they produce,
equalize carbon prices for imports and domestically produced goods. Cross-border wealthy countries adopting BCAs are violating this long-established principle.59 At the
collaboration is one approach, such as through the unilateral implementation of a same time, there are also calls for developed countries to take responsibility for the
BCA, which would apply domestic carbon pricing to imports. Implementing a BCA carbon footprint of their consumption, toward which a BCA would play a part. In the
requires the development of methodologies to estimate the emissions embodied in context of the EU CBAM, some have proposed exempting least developed countries,
goods,xix as well as the degree to which those embodied emissions have already faced though others argue that this would reduce the effectiveness of the mechanism.60 An
carbon pricing. Despite challenges, the potential to adapt existing and emerging alternative approach to promoting equity is to dedicate CBAM revenues to supporting
technical developments on measuring embodied emissions makes cross-border developing countries with low-carbon development. While the EU’s initial proposal
pricing approaches appear feasible. would allocate most revenues to the EU budget, lawmakers have proposed channeling
revenues to least developed countries in order to compensate for the costs the
mechanism will imply for them.61

xviii Carbon leakage refers to the risk that emissions reduced in one jurisdiction are offset by increased emissions elsewhere. This can be the result of production increasing in or being relocated to another
jurisdiction with laxer emission constraints (e.g., a jurisdiction with a lower, or zero, carbon price). Carbon leakage is an economic, political, and environmental concern: It can potentially translate into loss of
GDP, jobs, and tax revenue in the most ambitious countries, creating a disincentive to act, and also reduce the efficiency of climate policies by shifting emissions to laxer countries, which can lead to an increase
in global carbon emissions. There is little empirical evidence of carbon leakage occurring to date. This is likely, in part, due to historically low carbon prices and that most existing climate policies have included
measures (such as exemptions) to reduce carbon leakage in high-risk sectors.
xix Embodied emissions refers to the carbon content of a product. It relates to the GHG emissions released during the production of the good (not the carbon physically contained in a product).
xx California already operates applies a carbon price to electricity imports.

FOREWORD SUMMARY CHAPTER 1 CHAPTER 2 CHAPTER 3 ANNEXES 28

BOX 4
The EU's proposed carbon border adjustment mechanismxxi
The adoption of a CBAM is a key component of the EU’s climate strategy and its Importers would be able to avoid or reduce potential costs imposed by the CBAM in
ambition to achieve net zero emissions by 2050 while safeguarding competitiveness a number of ways. First, imports from countries that participate in the EU ETS, or
and avoiding carbon leakage. Under the draft regulations released in July 2021, the have a domestic ETS linked to them, would be fully exempt.xxii Second, goods that are
CBAM would effectively involve applying a carbon price to imports of certain goods subject to a direct carbon price (i.e., a carbon tax or ETS) in their country of origin
to the EU, proportionate to the goods’ “embodied emissions,” or the GHG emissions would be eligible for a rebate equal to the price already paid prior to export. Third,
generated during their manufacture. Importers of covered goods would be required to electricity imports from countries whose electricity markets are integrated with that
purchase emission certificates proportionate to their embodied emissions. The price of the EU would be exempt.
of these certificates would mirror that of EU ETS allowances.
The proposal for the CBAM is currently under review by the European Parliament
The CBAM is intended to gradually replace the current free allocation of allowances and the European Council. Potential amendments proposed in the parliament
as the main measure to combat carbon leakage in the EU ETS. Under the draft include making the 2025-2028 transitional period shorter and sooner, to 2023-
proposal, the mechanism would be phased in proportionate to the phase-out of the 2024, eliminating EU ETS free allocation much more rapidly. Scope 2 emissions from
existing free allocation. The European Commission would adjust the number of CBAM electricity use might be included, and use of CBAM revenues might be better targeted
certificates to be surrendered to reflect the extent of free allowances allocated under to support climate action outside the EU bloc. In March 2022, the Council released a
the EU ETS, which would decline by 10% each year over the period to 2035. draft text pushing for CBAM issues relating to free allocation phase-out and export
rebates to be part of the upcoming EU ETS review. This move has been suggested to
According to the proposal, the CBAM would apply to the import of electricity and streamline the finalization of the CBAM regulation and shift decision-making power
specified goods in the steel, iron, cement, fertilizer, and aluminum sectors. The from finance ministers to environment ministers, considered better positioned to
proposal would initially only apply the CBAM to Scope 1 emissions, though importers address these issues. The French Presidency of the EU is aiming to achieve agreement
would need to report on embodied Scope 2 indirect emissions from electricity on the measure among lawmakers by June 2022, though it is as yet unclear if this will
consumption, leaving the door open to include these emissions in future years. be achieved.
Embodied emissions for products would be determined in two ways: Calculations
would be based on actual emissions recorded at installation level, verified by
accredited verifiers, while default values would be applied where importers cannot
show actual emissions generated. For electricity, calculations would primarily rely on
third-country default values that correspond to average CO2 emission factors in the
country.

xxi The European Commission presented its final draft regulations for the CBAM in July 2021. See European Commission, “Proposal for a Regulation of the European Parliament and of the Council Establishing a
Carbon Border Adjustment Mechanism,” July 14, 2021.
xxii The proposed regulation allows for the possibility of further acts which increase the number of CBAM exemptions. Such cases would include a third country’s inclusion into the EU ETS, or a linkage agreement
between the EU ETS and the country’s own emission trading system (as is the case for Switzerland).

FOREWORD SUMMARY CHAPTER 1 CHAPTER 2 CHAPTER 3 ANNEXES 29

Challenges in determining the equivalency of climate policy instruments are fueling addressed through policy design, such as through a tiered pricing structure reflecting
debates over the design of BCAs. Applying BCAs fairly and effectively requires the level of development.
development of methodologies to estimate the emissions embodied in imports, as well
as the degree to which those embodied emissions have already faced carbon pricing Interest in the establishment of common or minimum standards for carbon
or similar policies. While methodologies for domestic output-based allocation have pricing across jurisdictions is increasing. The most ambitious of these approaches
xxiii
long offered ways to estimate embodied emissions, estimating whether they have would be the adoption of a minimum price on carbon or “international carbon price
already been subject to equivalent carbon pricing measures is less straightforward, floor,” either globally or among large emitting countries. The latter could provide a
given the presence of free allocation, small-firm exclusions, or energy tax exemptions. more manageable “mini-lateral” approach, to allow scaling ambition by addressing
Indirect carbon prices (see section 1.2), such as those related to fuel excise taxes or fuel concerns that competitors will gain an unfair advantage due to lower (or no) carbon
subsidies, also have complex interactions with direct carbon pricing and can influence prices. In addition, a minimum carbon price can be applied more broadly than
carbon leakage risks. This debate is currently playing out in the design of the EU CBAM, other approaches (such as BCAs), which only target traded products. The IMF63 and
where key trading partners argue that strong climate policies, rather than only carbon the WTO64 have called for the establishment of such a mechanism, as have various
pricing, should be recognized. However, the EU has so far been reluctant to recognize academics and a UN-convened group of global asset owners responsible for managing
other policies, arguing that determining equivalency between policies is fraught with USD 6.6 trillion.65 Both Canada66 and France67 have recently joined the call for an
complications. international price floor, though the French proposal only covers EU member states.
Germany’s proposed climate club would focus, among other things, on “uniform
The potential establishment of “climate clubs” xxiv
could provide a forum to adopt standards” for carbon pricing, which could include the establishment of a minimum
mutual agreements on decarbonization that could provide an alternative path to price floor.68 However, an international carbon price floor poses some challenges,
recognizing equivalency. For example, the proposed US-EU Carbon-Based Sectoral including the need to understand equivalency of coverage between jurisdictions’
Arrangement on Steel and Aluminum Trade aims to establish common definitions carbon prices and to account for equity issues across participating countries.
of low-carbon steel through mutually agreed trade arrangements. Germany has,
moreover, included the establishment of “an open and cooperative international Moves to link emissions trading systems in the past year have been limited.
climate club” among its policy priorities for its presidency of the Group of Seven (G7) While linking has been a focus in the recent past for international cooperation on
in 2022,xxv a proposal that has gained support among other EU countries.62 It is as yet carbon pricing, it presents a host of complex challenges and only a small number
unclear whether such arrangements would be complementary or alternative to other of jurisdictions have so far managed to link their systems. Developments over the
trade mechanisms, such as the CBAM. While these types of climate club approaches past year have been limited in this regard. California and Québec announced their
potentially provide a model for sidestepping some of the complex considerations intention to explore opportunities for future carbon market alignment with New
around policy equivalency, they will likely require some way of differentiating Zealand under the Western Climate Initiative.69 Washington State, which will launch
between low- and high-carbon exporters. While BCAs can offer incentives to its new cap-and-trade program on January 1, 2023,70 will not link to the initiative
exporting producers to adopt more climate-friendly practices (i.e., improve emissions at the outset, although it may develop a regulation enabling future such linkage.71
intensity of goods), climate clubs would leverage trade measures to incentivize However, the international carbon market rules agreed at COP26 in Glasgow provide
foreign jurisdictions to adopt more ambitious climate policies. However, climate some welcome certainty regarding the implications of linking for countries’ national
clubs have the potential to disadvantage lower-income countries, where they are not mitigation targets (see Box 5).
able to meet membership criteria set by more advanced economies. This could be

xxiii For example, emissions intensity benchmarking approaches in the EU, Canada, and New Zealand.
xxiv The term “climate club” has been used in different circumstances and can capture a range of frameworks. William Nordhaus developed the concept of a climate club as “an agreement by participating countries
to undertake harmonized emissions reductions,” with members receiving benefits, while nonmembers are penalized. In this report, the term “climate clubs” is used in a general way to capture formalized
agreements between countries aimed at promoting climate mitigation outcomes. W. Nordhaus, “Climate Clubs: Overcoming Free-riding in International Climate Policy,” American Economic Review 105, no. 4,
(2015).
xxv While the initial proposal has been launched in the context of the G7, it would in principle be open to all nations and Germany is considering broadening the proposal to the G20, which includes major emerging
economies such as China, India, and Brazil.

FOREWORD SUMMARY CHAPTER 1 CHAPTER 2 CHAPTER 3 ANNEXES 30

BOX 5 2.5 RISING ENERGY PRICES CREATE CHALLENGES AND
Article 6 rules on linking emissions trading systems OPPORTUNITIES FOR CARBON PRICING
The finalized Article 6 Rulebook allows countries to establish the linking Existing political challenges in adopting and expanding carbon pricing have been
of their domestic ETSs as a “cooperative approach” under Article 6.2. xxvi
amplified as global energy prices have increased, putting pressure on individual
Doing so requires linking partners to estimate the increase or reduction household budgets. Ensuring carbon pricing is fair, and seen to be fair, will be crucial in
of emissions in their jurisdiction incentivized by the trade of allowances, building and maintaining public support.
and translate this net amount into internationally transferred mitigation
outcomes (ITMOs). These ITMOs are then accounted for in the Article 6 Global oil and gas prices have sharply increased in the past year, fueled by a
reporting structures, enabling the linking partner that has reduced its combination of growing demand due to post-COVID economic recovery, supply
emissions through a linked ETS to use these reductions toward achieving constraints, and, more recently, the war in Ukraine. European gas prices are now at
its NDC target. Inversely, the linking partner that has effectively increased their highest levels ever, while global oil prices are at their highest levels in almost a
its emissions through the linking program will need to reflect this increase decade.xxvii A EU commitment to reduce reliance on Russian oil and gas in the wake of
in emissions in its reporting as well.72 the invasion of Ukraine meanwhile has the potential to increase gas prices further.73
The sudden energy price increases and corresponding inflation is putting pressure on
governments to shield consumers and vulnerable households from energy poverty, by
regulating or capping energy prices, introducing subsidies, or scrapping surcharges.
While typically only applied for a limited time, any measures that directly reduce the
price of energy would dampen incentives to reduce emissions.

The current political and economic context presents both challenges and
opportunities for carbon pricing. In economies highly exposed to fuel prices, new,
expanded, or increased carbon prices would result in additional price pressure on
consumers in a context where citizens and businesses are already struggling to pay
their energy bills. In the EU, some member states have either expressed unease or
asked to suspend extension and reform plans of the EU ETS, due to worries about
the effect of the policy on the energy poor.74 In the short term, high prices may lead
to reduced energy use but will not provide investors in low-carbon projects with the
kind of long-term certainty that a stable carbon price does. Governments can also
use carbon pricing to provide a longer-term incentive to increase domestic renewable
energy production, which can help reduce reliance on foreign energy and provide
some protection against global energy price shocks.

Backlash against energy price increases is particularly strong when they are
perceived to disproportionately affect vulnerable populations. Widespread protests
triggered by the removal of liquified petroleum gas (LPG) subsidies in Kazakhstan in

xxvi Countries may also decide not to account for the link or communicate two separate
NDC targets for ETS and non-ETS sectors. See e.g., L. Schneider, J. Cludius, and S. La
Hoz Theuer, Accounting for the Linking of Emission Trading Systems under Article
6.2 of the Paris Agreement, International Carbon Action Partnership, 2018. xxvii Data obtained from https://tradingeconomics.com/.

FOREWORD SUMMARY CHAPTER 1 CHAPTER 2 CHAPTER 3 ANNEXES 31

early 2022 sprang from the western Mangystau region. This region produces most BOX 6
of the country’s oil but is among its poorest regions, and a high share of residents’
vehicles run on LPG.75 The protests exposed deep underlying discontent amid rising
Just transition in the EU’s climate policy
inequality and food costs and a sense that the government was not acting in the best The EU’s Fit for 55 Package includes a number of measures to strengthen
interests of the community, and protestors’ demands quickly expanded beyond fuel the EU’s climate performance. EU ETS revenues will benefit the Social
prices to encompass broader political reform. This is in line with previous studies,
76
Climate Fund, which will provide funds to address the impacts of extending
including recent research from the IMF, which indicates that introducing CPIs in the EU ETS to the road transport and building sector on vulnerable
countries with high inequality and lower social spending tends to trigger a stronger households, micro-enterprises, and transport users to cushion the financial
backlash. The Kazakhstan government ultimately agreed to roll back the energy policy impacts on citizens and businesses.85 The European Commission also issued
reforms and place a cap on fuel prices.77 guidance for a fair and inclusive transition.86 Earlier, the European Green
Deal also introduced the Just Transition Mechanism to provide targeted
Aligning carbon pricing and related policy around achieving a “just transition” is support to regions affected most by the transition to a climate-neutral
central to building and maintaining support amid high energy prices, inflation, and economy.87
the continued need for deeper transformation. Key imperatives of a just transition
include creating reliable work and quality jobs, and ensuring at-risk regions,
industries, communities, workers, and consumers share in the benefits of a green
transition.78 Policymakers increasingly recognize a just transition as key not only to
ensuring equity in climate policy, but also in building the support needed to adopt
and sustain it. Washington State’s cap-and-trade program was adopted as part of a
broader climate package that also seeks to tackle environmental racism.79 In Canada,
civil society is increasingly calling for a Just Transition Act as part of stronger climate
action, including the recently increased carbon price.80 Indonesia’s Ministry of
National Development Planning recognized the importance of allocating a share of
their future carbon tax revenues for investments that will support a just transition
in a recent report,81 and in South Africa, the president has established a Presidential
Climate Commission, which, among other priorities, is tasked with defining the Just
Transition Framework for the country. Finally, the EU has adopted a range of funds
and policies designed to offset the impacts of its climate strategy—of which the
EU ETS is a key part—on vulnerable populations and sectors (see Box 6), and some
lawmakers see the inclusion of targeted social investments as crucial to supporting a
proposed second ETS for buildings and transport.82

Implementing just transition strategies can be partially financed through carbon

pricing revenues. In Pennsylvania, the US state that has signaled joining the RGGI in
2022, revenue raised through the proposed cap-and-trade system will, among other
things, be used to support employees in the fossil fuel industry to transition to other
sectors.83 Ireland also announced that the additional revenues from the 2022 carbon
tax increase will be used to support initiatives that ensure a just transition, including
through increased spending on social welfare and prevention of fuel poverty.84

FOREWORD SUMMARY CHAPTER 1 CHAPTER 2 CHAPTER 3 ANNEXES 32

Chapter 3 Carbon credit markets are at a crossroads. Strong voluntary demand and

Carbon
broadening market diversity—expressed through new buyers, market niches,
trading infrastructure, and distinct pricing and preferences—have driven the
market dynamics of the past year. At the same time, as the market grows, the
role of carbon crediting in meeting emissions goals is attracting higher scrutiny.

crediting -
To sustain current growth, market actors will need to collaborate to support
high standards, protect environmental integrity and credibility, and deepen
liquidity. Specialized governance bodies, financial services, and new technological

markets
infrastructures are emerging to support solutions to scaling up markets and
ensuring integrity.

and
3.1 CARBON CREDIT MARKETS ARE GROWING RAPIDLY, LED
BY VOLUNTARY MARKET ACTIVITY

mechanisms
The growth of carbon credit markets has accelerated further over the past year, with
issuances, transactions, and prices all rising sharply. New carbon market rules set
at COP26 in Glasgow have created additional certainty that may help international
compliance markets develop further in coming years. For now, most market activity
remains centered on the voluntary carbon market.

Carbon credit markets grew 48% in 2021. The total number of credits issuedxxviii
from international, domestic, and independent credit mechanismsxxix increased from
327 million to 478 million. This is the biggest year-on-year increase since 2012, the
peak of carbon credit issuance (Figure 9). The total number of credits issued since
2007 is around 4.7 billion tCO2e.

xxviii Credits may be generated from projects as soon as the emissions removals or reductions take
place; however, credits will only be officially issued once they have been reviewed and verified
by the respective authorities.
xxix The independent mechanisms included are those with the highest issuances: American Carbon
Registry, Climate Action Reserve, Gold Standard, the Verified Carbon Standard from Verra, Plan
Vivo, and the Global Carbon Council.

FOREWORD SUMMARY CHAPTER 1 CHAPTER 2 CHAPTER 3 ANNEXES 33

FIGURE 9
Global volume of issuances by crediting mechanism category

CDM (11%)
Climate Action Reserve (1%)
American Carbon Registry (2%)
Gold Standard (9%)
Independent mechanisms
Million tCO2e

1000 Verified Carbon Standard (62%)

International mechanisms
Taiwan Offset Program (2.6%)
900 Domestic mechanisms
California Offset Program (3.6%)
800 Australia Emission Reduction Fund (3.6%)

700

600

500

400

300

200

100

0
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

FOREWORD SUMMARY CHAPTER 1 CHAPTER 2 CHAPTER 3 ANNEXES 34

BOX 7 2. Domestic compliance markets involve companies purchasing credits that are eligible
for meeting their obligations under a domestic law, usually an ETS or a carbon tax.
Understanding carbon credit markets These may include credits issued under international, domestic, or independent
Global carbon credit markets consist of a diverse range of sources of supply, sources crediting mechanisms depending on the rules established by respective governments.
of demand, and trading frameworks.
3. Voluntary carbon markets consist of (mostly private) entities purchasing carbon
Supply derives from different types of crediting mechanisms, including the following: credits for the purpose of complying with voluntary mitigation commitments. They
• International crediting mechanisms established under international treaties—the largely consist of credits issued under independent crediting standards, though
Kyoto Protocol (including the Clean Development Mechanism [CDM]) and the Paris some entities also purchase those issued under international or domestic crediting
Agreement. xxx
mechanisms.
• Domestic crediting mechanisms established by regional, national, or subnational
governments, such as the California Compliance Offset Program and the Australia 4. Results-based finance refers, in the context of the carbon market, to purchases of
Emissions Reduction Fund. carbon credits by governments or international organizations for the purpose of
• Independent crediting mechanisms includes standards and crediting mechanisms incentivizing climate change mitigation or meeting national targets. Results-based
managed by independent, nongovernmental entities, such as Verra and Gold finance can also refer to broader payments in return for the achievement of emissions
Standard. reductions, without any transfer of credits or other ownership.

Demand derives from a range of compliance obligations established under The linkages and overlaps across compliance and voluntary markets, as well as
international agreements and national laws, as well as voluntary commitments international and domestic markets, continue to evolve.
adopted by companies, governments, and other organizations.

While most carbon credits tend to attract a range of different kinds of buyers,
meaning that few sources of supply can be matched with only one source of demand,
it is possible to identify four broad segments, largely based on demand drivers:

1. International compliance markets primarily respond to commitments made

under international agreements. They primarily consist of (i) countries
voluntarily purchasing/utilizing credits or “mitigation outcomes” recognized
under international treaties to help meet their emission reduction commitments
(previously established under the Kyoto Protocol and more recently the Paris
Agreement); and (ii) airlines purchasing credits eligible for meeting their
obligations established under the Carbon Offsetting and Reduction Scheme for
International Aviation (CORSIA).xxxi

xxx Article 6 of the Paris Agreement provides the framework for international carbon markets: Article 6.4 establishes a centralized mechanism supervised and governed by the UNFCCC, which is expected to be
administratively similar to the CDM of the Kyoto Protocol, and Article 6.2, on the other hand, provides a basis for bilateral or plurilateral voluntary cooperation among countries, which potentially offers
flexibility to reduce GHG emissions from a variety of processes, mechanisms, and standards.
xxxi One of the key features that distinguishes international compliance markets from voluntary markets is the mandatory authorization by the governments in whose jurisdiction the credits are generated and
transferred from. Under the Paris Agreement, the sale and purchase of carbon credits requires accounting by Parties to the Paris Agreement through a “corresponding adjustment.” While international
compliance markets exclusively trade credits that are authorized (i.e., include a commitment for corresponding adjustments by the seller government), voluntary carbon markets may also trade in credits that
are not accompanied by such authorization.

FOREWORD SUMMARY CHAPTER 1 CHAPTER 2 CHAPTER 3 ANNEXES 35

FIGURE 10
Stylized representation of types of carbon crediting mechanisms and market segmentsxxxii

OF SUPPLY

Regional, national, and subnational

SOURCES

International crediting mechanisms Independent crediting mechanisms

crediting mechanisms

e.g. CDM, Art 6.4 e.g. California Compliance Offset Program e.g. VCS, Gold Standard

International compliance markets Domestic compliance markets Results-based finance Voluntary carbon market
SEGMENTS
MARKET

Credit purchases aimed at helping Credit purchases aimed at Credit purchases aimed at
Credit purchases as public policy
countries meet their NDCs and complying with obligations meeting voluntary targets or
tool for incentivizing mitigation
airlines comply with CORSIA under carbon taxes, ETS commitments

xxxii Due to the heterogeneity and interaction between the different carbon markets (described in Box 7) there may be a potential overlap between issuances from international and independent mechanisms with
domestic mechanisms, as some jurisdictions reissue credits from independent mechanisms where they meet specific domestic criteria. To reduce this duplication, issued credits registered in more than one
registry are accounted for under the relevant domestic mechanisms (e.g., credits issued by the Climate Action Reserve and American Carbon Registry that meet specific requirements to be used in the cap-and-
trade are counted for by the California Offset Program).

The vast majority of new issuances came from projects registered under new registered projects in 2021. This reflects the uncertainty over the mechanism’s
independent crediting mechanisms, while issuances from international and future prior to clarification at COP26 on whether some CDM projects would be able to
domestic crediting mechanisms increased at a slower pace. This represents a transition to the new Article 6.4 mechanism. The CDM will likely continue its gradual
major turnaround in the past decade (see Figure 9). In 2021, credit issuance from phasedown over the coming years, pending its replacement by a new international
independent standards grew by 88%, totaling 352 million credits and representing market mechanism. Issuance from domestic mechanisms represented 15% of total
74% of the supply of carbon credits that year. In contrast, issuance under the CDM issuances, led by the California Compliance Offset Program and Australia’s Emissions
represented 11% of total issuances and grew by 25% in the same period, with no Reduction Fund (see Figure 11).

FOREWORD SUMMARY CHAPTER 1 CHAPTER 2 CHAPTER 3 ANNEXES 36

 FIGURE 11

Crediting mechanisms Credits issued (MtCO2e)

American Carbon

18

8.83
Registry

FOREWORD
Climate Action

44

4.83
Reserve
Domestic mechanisms

Gold Standard

51

43.79
Independent mechanisms
International mechanisms

Verified Carbon Standard

110

295.08
1
Plan Vivo

0.04

SUMMARY
1
Global Carbon Council

0.13
Clean Development

0
Mechanism

59.49
Alberta Emission

33

0.39
Offset System

Australia Emission
142

CHAPTER 1
Reduction Fund

17.04
California Compliance
38

Offset Program

17.42
Fujian Forestry Offset
3

0.33

Crediting Mechanism

Guangdong Pu Hui Offset

20

Crediting Mechanism
Credit issuance and number of projects in 2021, by category of mechanisms

0.28

CHAPTER 2
J-Credit Scheme
44

0.93

Québec Offset
3

*There is potential for overlap where domestic mechanisms rely on credits initially issued by other existing mechanisms.
0.18

Crediting Mechanism

Republic of Korea Offset

28

5.20

Credit Mechanism

Saitama Forest Absorption

0
15
Number of projects registered

Certification System

CHAPTER 3
Saitama Target Setting
592

Emissions Trading System

6.40

Spain FES-CO2
0

program
0.86

Switzerland CO2 Attestations

13

1.40

Crediting Mechanism

Taiwan GHG Offset

20

ANNEXES

Management Program
12.41

Thailand Voluntary Emission

32

3.03

Reduction Program
37
For the first time, the total value of the voluntary carbon market exceeded more this move is part of a broader strategy to raise ambition and bring the national ETS
than USD 1 billion in November 2021. 88
The market has further grown to USD 1.4 in line with the EU ETS, in California, the restrictions were largely motivated by
billion as of the writing of this report, according to Ecosystem Marketplace.xxxiii This concerns over the impact of offsets on environmental justice issues. The amendment
rapid increase in value reflects both rising prices and rising demand from corporate to the original cap-and-trade regulation specifies that 50% of all projects must, from
xxxiv
buyers leading to higher transacted volumes. Global average carbon credit prices 2021, directly benefit air and water pollution issues within the state.xxxvii
moved from USD 2.49/tCO2e in 2020 to USD 3.82/tCO2e in 2021, while the volume of
credits transacted in the voluntary market exceeded 362 million credits, 92% more Demand from international compliance markets changed little over the past year.
than in 2020. 89
While prices continued to rise in 2021, additional supply from surging The International Civil Aviation Organization (ICAO) CORSIA pilot phase started on
project registrations, new credit issuance, and reduced retirements have slowed the January 1, 2021, but demand from CORSIA remains very limited as international air
rate of increase. At the same time, corporate interest in using credits to meet climate travel remains depressed by the ongoing COVID-19 pandemic, as well as the ICAO
goals, along with traders and investors hoping to turn a profit on continued price Council’s decision to use 2019 emissions as the baseline above which credits must be
increases, has supported increased market value and liquidity. surrendered. While demand for flights recovered somewhat in 2021 compared with
2020, it was still 75% below 2019 levels.91 Choices by ICAOxxxviii led to less-stringent
Demand from domestic compliance markets, such as carbon taxes and ETSs, short-term decarbonization requirements for airlines and has largely eliminated
remains small, but this may change over time with agreement on Article 6 rules. demand in the immediate term. More demand could emerge later this decade, and
Many carbon pricing instruments allow entities to use carbon credits to meet their recent analysis suggests that even under a medium COVID-recovery scenario GHG
obligations. However, most restrict credits to those generated domestically or limit emissions from global air travel will exceed 2019 levels by 2024.92 In addition,
the amount that can be used for overall compliance.xxxv While many jurisdictions Ecosystem Marketplace has reported that while CORSIA-eligible credits are not being
have established their own domestic crediting mechanisms for meeting tax or ETS purchased for compliance purposes, they are being bought and sold at a premium
obligations (see Figure 12), five countries so far rely on carbon credits issued by to non-CORSIA credits sold to corporate end-users and intermediaries, as some
xxxvi
existing crediting mechanisms. Rule changes in some ETSs, including new corporate buyers see CORSIA eligibility as a sign that minimum quality standards
restrictions on the volume and type of carbon credits that can be used in California’s have been met.93
Cap-and-Trade Program and the exclusion of credits from the Switzerland ETS and
EU ETS from 2021, are likely to reduce demand.90 While in the case of Switzerland,

xxxiii Voluntary carbon market data is provided by Forest Trends’ non-profit initiative Ecosystem Marketplace. Ecosystem Marketplace data contains trade details such as price, volume, and other carbon credit
project and transaction attributes. The dataset for 2021 had not been finalized by the time this report was published and therefore market value figures do not represent a complete annual picture. However,
Ecosystem Marketplace’s dataset remains the most comprehensive available for the 2021 calendar year. Ecosystem Marketplace will release updated 2021 figures later in 2022 once data from all respondents
has been collected.
xxxiv The prices shown here are from Ecosystem Marketplace and are a global representation of both over-the-counter (OTC) transaction prices and trading platform cleared transaction prices, combined. They are
lower than standardized prices such as the Platt prices shown in Figure 13. This price difference may be due to the fact that prices for standardized contracts—transactions involving packages of carbon credits
with certified common characteristics (project type, vintages, and/or issuing standards) and sold as standard products by carbon exchanges—incorporate the additional costs of ex-ante screening and quality
assessment activities performed by standardized credit providers, which is not the case in OTC transactions. This price difference may also be due to differences the year of publication—Figure 13 shows prices
for 2022 compared to Ecosystem Marketplace prices for 2021.
xxxv The exceptions include Korea’s ETS and Mexico’s Carbon Tax. Korea’s ETS, as of 2021, permits emitters to use international credits for the full 5% of eligible offset use. International credits must be CDM
projects that are in part owned, funded, or operated by a Korean company. See World Bank,) “Carbon Pricing Dashboard: Korea ETS,” 2022; and ICAP, “Emissions Trading Scheme Dashboard,” 2021. Mexico’s
Carbon Tax permits covered entities to use certified emission reductions from the CDM, providing they are eligible for compliance in the EU ETS. See World Bank, “Carbon Pricing Dashboard: Mexico ETS,” 2022
xxxvi These schemes are Colombia’s Carbon Tax, South Africa’s Carbon Tax, China’s regional and national ETS schemes, Korea’s ETS, and Mexico’s Carbon Tax and pilot ETS.
xxxvii ICAP, “Switzerland Revises ETS Rules on Cap, Allocation, and Offsets,” ETS News, December 3, 2020; see Section 5 of the AB-398 California Global Warming Solutions Act of 2006: Market-based compliance
mechanisms: fire prevention fees: sales and use tax manufacturing exemption. (2017 amendment).
xxxviii The baseline was initially intended to be derived from average emissions over the 2019-2020 period. However, following the major drop in passenger numbers caused by the COVID-19 pandemic, the ICAO
Council decided to build the baseline solely on 2019 emissions.

FOREWORD SUMMARY CHAPTER 1 CHAPTER 2 CHAPTER 3 ANNEXES 38

 FIGURE 12
Map of national and subnational crediting mechanisms

Saskatchewan GHG
Offset Program
Alberta Emission
Canada Federal Offset System Québec Offset Crediting
GHG Offset System Mechanism

British Columbia
Offset Program

Republic of Korea Offset

Switzerland CO2 Kazakhstan Crediting Credit Mechanism
Attestations Crediting Mechanism
Mechanism

Spain FES-CO2 Joint Crediting Mechanism

California Compliance Program J-Credit Scheme
Offset Program
China GHG Voluntary
Emission Reduction Program
RGGI CO2 Offset Mechanism
Mexico Crediting
Mechanism
Thailand Voluntary Taiwan GHG Offset
Emission Reduction Management Program Beijing Parking Offset
Program Crediting Mechanism
Beijing Forestry Offset
Saitama Target Setting
Colombia Crediting Sri Lanka Carbon Mechanism
Emissions Trading System
Mechanism Crediting Mechanism
Saitama Forest Absorption
Certification System

Tokyo Cap-and-Trade
Program
Chile Crediting Indo-Pacific Carbon
Mechanism Offsets Scheme

South Africa Chongqing Carbon Fujian Forestry Offset

Crediting Mechanism Australia Emissions Offset Mechanism Crediting Mechanism
Implemented Reduction Fund
Under development
Guangdong Pu Hui Offset
Crediting Mechanism

Circles represent crediting mechanisms in subnational jurisdictions and cities. “Implemented” crediting mechanisms have the required framework (e.g., legislative mandate)
as well as the supporting procedures, emission reduction protocols and registry systems in place to allow for crediting to take place.

FOREWORD SUMMARY CHAPTER 1 CHAPTER 2 CHAPTER 3 ANNEXES 39

Whether CORSIA will be a significant source of demand in the longer term remains potential levels and locations of supply and demand are uncertain.98 While some
unclear. While a quick recovery from the pandemic would result in compliance major developed countries, including the EU and the United States, have signaled
obligations for airlines in the short term, if the ICAO General Assembly extends the 2019 they will not use Article 6 for achieving their mitigation targets, a number of other
baseline to 2035, which it is considering doing, these obligations may be significantly countries have already started to develop their Article 6 strategies and at least 10
reduced. Such an adjustment would considerably dampen the aviation sector’s demand countries have already indicated their interest in using international mitigation
for credits over the next 13 years and compromise the industry’s climate commitments outcomes to meet their NDCs.99 Countries intending to participate in the international
further. 94
However, ICAO’s requirements are already shaping the market. As ICAO’s carbon credit market will, moreover, need time to become acquainted with the
Technical Advisory Body approved eight standards as eligible for CORSIA purposes, 95
newly set Article 6 rules and prepare domestic capacity, administrative rules, and
several contract types that track “CORSIA-eligible credits” have emerged. These include infrastructure to facilitate transfers of mitigation (see section 3.5). Moreover, the
Xpansiv CBL’s global exchange platform, Global Emission Offsets, 96
and AirCarbon Article 6 rulebook contains several elements that introduce a different context for
Exchange CORSIA Eligible Token. The credits currently being traded do not have compliance trading compared to the Kyoto Protocol. Notably, the rulebook does
corresponding adjustments, which will be a requirement for CORSIA-eligible credits not allow for the banking of ITMOs across NDC implementation periods. Questions
with vintages from 2021 onward, to avoid double counting. about how such elements will play out further add to the uncertainty about how the
international compliance market might evolve.
New rules governing international carbon markets have provided certainty that
may lead to growth in these markets in the coming years. At COP26 in late 2021,
countries agreed on rules for international carbon trading under Article 6 of the 3.2 VOLUNTARY CORPORATE COMMITMENTS ARE THE MAIN
Paris Agreement (see section 3.5 for further details). These rules provide greater
certainty that will help progress existing collaboration efforts and may lead to the
DRIVER OF MARKET GROWTH
development of new approaches. For example, Switzerland, Japan, and Sweden,xxxix
and more recently Republic of Korea,97 are already engaging with potential partners The voluntary climate targets from the corporate world are still the main force
to develop transaction structures. Other related initiatives include the World Bank behind the increasing demand for carbon credits. These targets should commit to
Transformative Carbon Asset Facility and the Global Green Growth Institute, ambitious decarbonization in the company's own value chain while compensating or
which both receive funding through various governments to explore and set up neutralizing residual emissions. The plans for achieving these targets, however, vary
Article 6 transactions and implement capacity-building activities to facilitate the in terms of scope, coverage, timelines, and intended use of carbon credits.
operationalization of the Article 6 market. An important distinction between the Paris
Agreement and the Kyoto Protocol is the extent of national commitments. While only Growing corporate net zeroxl commitments are driving demand in the voluntary
developed (or Annex I) countries had climate targets under the Kyoto Protocol, any carbon market segment. Large purchasers in 2021 came from a range of sectors.
country can have a voluntary climate pledge articulated in an NDC under the bottom- Energy companies, mainly large oil and gas firms, led the way in purchasing credits,
up framework of the Paris Agreement. Therefore, any country could conceivably act as increasing their demand ninefold compared to the previous year. Food and beverage
a buyer or seller in Article 6 markets, depending on their needs at a given time. and tourism companies have also purchased credits at high prices, and other
consumer goods firms are also active buyers.100 The financial sector significantly
However, it will take time before the potential size and scale of international increased its carbon credit purchases, as banks set climate targets for their operations
compliance markets is known. While 87% of Parties to the Paris Agreement have and other financial institutions act as intermediaries for corporate clients and as
signaled their interest in participating in the international compliance market, the speculators from the market.101 The 2021 launch of the Glasgow Financial Alliance

xxxix Sweden will not use Article 6 credits to meet its target under the EU NDC but will rather use ITMOs for meeting its national commitment beyond the EU NDC.
xl According to the Voluntary Carbon Markets Integrity Initiative, net zero emissions are achieved when anthropogenic emissions of greenhouse gases to the atmosphere are balanced by anthropogenic removals
over a specified period.

FOREWORD SUMMARY CHAPTER 1 CHAPTER 2 CHAPTER 3 ANNEXES 40

for Net Zero, a coalition grouping of financial institutions representing around The rapid increase in corporate voluntary net zero commitments has led to strong
40% of global banking assets that have voluntarily committed to a state of net zero growth forecasts for carbon credits demand. One recent analysis forecasts a 15-
emissions, has bolstered this trend. fold increase in demand to 1.5-2 gigatons of carbon dioxide (GtCO2) per year by
2030, and a 100-fold increase to 7-13 GtCO2 by 2050.107 Other forecasts show similar
The growth in net zero targets has accelerated rapidly over the past years. trends, reaching demand of 2 GtCO2 per year by 2030 if the outcomes of COP26 lead
Corporations can voluntarily buy carbon credits to contribute toward meeting their to effective coordination of global voluntary and compliance markets.108 Under most
climate targets, to compensate for emissions, or to remove unabated emissions. forecast scenarios, growth is expected to be driven by the increasing number of
The UNFCCC’s Race to Zero initiative now reports 5,235 companies have made a corporate net zero commitments in combination with an increased supply of new
commitment of this type, and pledges by Global Fortune 500 companies grew 17% technologies and nature-based solutions.xlii Growth in demand volume is expected to
between 2020 and the end of 2021. The sector level also shows progress-notably in be mirrored in value, with some estimates forecasting the market to increase 7-20%
the International Air Transport Association recently announcing a voluntary net zero in value in one year, to reach a total value of USD 1.5-1.7 billion in 2022.109
target for the aviation sector by 2050.102 Under current plans, 19% of the target will be
met with carbon credits. Philanthropic demand has historically represented a very small share of the
carbon credit market; however, this is a potential growth area if philanthropists
The increasing speed of corporate climate target adoption, combined with a and corporations seek to scale up near-term climate finance. These entities may
xli
diversity of net zero terms, claims, and target-setting approaches, is making make voluntary contributions to the goals of the Paris Agreement beyond their own
it difficult to distinguish the current role of credits in deep decarbonization. operations and supply chains by financing emission reductions. Rather than acquiring
Due to the absence of a globally recognized standard, corporate climate plans vary them and offsetting the company’s GHG emission footprint, they purchase carbon
considerably in terms of scope, emissions coverage, timelines, and intended use of credits and retire them. For example, PayPal has purchased carbon credits without
carbon credits for its compliance. This leads to some cases where companies are making compensation claims and Walmart committed to protecting 50 million acres
over-relying on carbon crediting to meet their climate targets or selling “carbon of land by 2030 without an offsetting claim.110 While these contribution claims could
neutral” products or services without accounting for a significant share of emissions. represent a growing source of demand for carbon credits and help create a pioneering
One example is the introduction of "carbon neutral" liquified natural gas103 and oil route for private actors to contribute to the Paris goals, further guidance is needed
products. 104
There are other examples where claims could confuse consumers, such as to inform when and how carbon credits can be used as part of credible contribution
the case of Deutsche Post DHL, which offers carbon neutral deliveries but less than claims that go beyond entities’ value chains. Other companies also continue to apply
1% of the company’s emissions were offset in 2020. 105
If the world is to reach net zero internal carbon prices, with some investing revenues in reducing emissions in their
by 2050, companies must prioritize the decarbonization of their emission pathways supply chain without necessarily claiming these as credits (see Box 8).
and seek to compensate (through emission reductions) or neutralize (through
removals) only residual emissions with carbon credits. An example of this approach is
Maersk’s commitment to reduce its value chain emissions by 90% through innovative
technologies and fuels and to only rely on carbon credits for 5-10% of its residual
emissions to achieve zero-carbon shipping by 2050.106

xli Corporates are using different terms for their climate commitments; others include net zero, zero emissions, carbon free, carbon neutrality, and climate positive, among others.
xlii As the significance of carbon removals is emerging, many market participants call a large part of them “nature-based solutions (NbS).” NbS provide projects that protect, transform, or restore land that absorbs
CO2 emissions from the atmosphere becoming eligible for the issuance and sale of carbon credits. However, and as the International Union for Conservation of Nature defines them, NbS aim to protect, sustainably
manage, and restore natural or modified ecosystems that address other major societal challenges, such as food security, water security, human health, or social and economic development.

FOREWORD SUMMARY CHAPTER 1 CHAPTER 2 CHAPTER 3 ANNEXES 41

BOX 8 FIGURE 13A
Type and use of internal carbon pricing, based on data from
Internal carbon pricing
CDP
The past year has seen a moderate increase in the number of companies reporting the
use of an internal carbon price (ICP), but overall uptake remains limited. Motivations Motivation for implementing ICP Type of ICP
for implementing an ICP and uptake across geographies remain relatively unchanged,
Companies 0 200 400 600 Companies 0
but new trends in sectoral spread can be seen since last year. The wide range of ICP
prices remains, as does the small minority of companies implementing ICPs at prices Drive low-carbon investment 68% Shadow price
needed to meet the temperature goals of the Paris Agreement.
Drive energy efficiency 62% Implicit price

TYPE AND USE OF ICP Change internal behavior 59% Internal fee

Of all companies publicly disclosing to CDPxliii in 2021, 16% reported that they had Identify and seize
low-carbon opportunities 48% Offsets 1
already implemented an ICP, and a further 19% indicated that they have plans
Navigate GHG regulations 43% Other 8%
to implement such a price in the next two years. Of the companies that publicly
disclosed to CDP in both 2020 and 2021, there has been a 16% increase in the number Stakeholder expectations 37% Internal trading 2
reporting the use of an internal carbon price. Stress test investments 28%

Supplier engagement 12%

The motivations for implementing an ICP remain consistent with previous years, with
stimulating low-carbon investment and driving energy efficiency the most frequently Other 10%
cited drivers. The type of ICP used also reflects previous years, with shadow pricing—
where companies apply an assumed cost to emissions associated with a given
investment or project, in order to better understand their climate impacts—still
Motivation for implementing ICP Type of ICP
representing by far the most common type of price applied.
Uptake across sectors Uptake across geo
Companies 0 200 400 600 Companies 0 200 400 600
ICP ACROSS SECTORS AND GEOGRAPHIES
Drive low-carbon investment Shadow price Companies 0 50 100 150 200 250 Companies 0
68% 67%
The uptake of ICPs across geographies shows no major change, with Europe and
Drive energy efficiency Implicit price Services 26% Europe
Asia and Pacific continuing 62% the
to host the highest number of companies reporting 21%
Materials 17% Asia & Pacific
use of an ICP. The past yearinternal
Change has, however,
behaviorseen a change in sectoral trends,
59%with the Internal fee 17%
service sector overtaking the energy
Identify andsector
seize as the industry with the highest number of Manufacturing 17% North America
low-carbon opportunities 48% Offsets 13%
companies implementing an ICP.
Infrastructure 9% South America
Navigate GHG regulations 43% Other 8%
Africa
PRICING Stakeholder expectations 37% Internal trading
Fossil fuels
2%
6% 3%

Reported ICPs range anywhere between USD 0.8 and USD 6,000/tCO2e. The majority, Power generation 6%
Stress test investments 28%
however, remain below the USD 50-100/tCO2e price that leading economists say is
Food, beverage & agriculture 5%
needed to meet the temperature goals of the Paris
Supplier engagement 12% Agreement. Of the approximate 950
companies disclosing their ICPs to CDP, 68% currently implement a price of USD 50/ Retail 5%
Other 10%
tCO2e or below, and a further 18% implement a price between USD 50 and USD 100/ Transportation services 4%
tCO2e. Fewer than 100 companies disclose that they are currently implementing a
Biotech, health care & pharma 3%
carbon price of over USD 100/tCO2e.
Apparel 1%
Uptake across sectors Uptake across geographies
Hospitality <1%
xliii See CDP website for further details: https://www.cdp.net/en
Companies 0 50 100 150 200 250 Companies 0 50 100 150 200 250 300 350

Services 26% Europe 39%

Materials 17% Asia & Pacific 35%

FOREWORD SUMMARY CHAPTER 1 CHAPTER 2 CHAPTER 3 ANNEXES 42
Manufacturing 17% North America 18%
 Stakeholder expectations 37% Internal trading 2%

Stress test investments 28%

Supplier engagement 12%

FIGURE 13B Other 10% 3.3 CARBON CREDIT MARKET GROWTH IS UNEVEN,
Uptake of internal carbon pricing, based on data REFLECTING DIVERSE BUYER PREFERENCES
from CDP
Demand preferences and buyers’ needs continue to incentivize a spectrum of alternatives
Type of ICP for carbon credits with differentiated prices across project types, geographies, and co-
Uptake across sectors Uptake across geographies
benefits. A highlight this year is the increased interest in forest and land use-based
Companies 0 200 400 600
Companies 0 50 100 150 200 250 Companiescredits.
0 50 100 150 200 250 300 350
Shadow price 67%
Services 26% Europe 39%
Implicit price 21% Carbon credit prices have risen sharply, though prices continue to vary across
Materials 17% Asia & Pacific 35%
different types of credits. The market for credits from independent crediting
Internal fee 17%
Manufacturing 17% North Americamechanisms is heterogeneous,
18%with buyers placing a range of values on
Offsets
South Americacharacteristics such as the sector (e.g., type of activity), geography, age/vintage,
13%
Infrastructure 9% 5%
Other and co-benefits of credits. While recent years have seen some moves toward
8% Africa
Fossil fuels 6% 3%
offering standardized contracts (see section 3.4), prices vary widely, with trading
Internal trading 2%
Power generation 6% platforms offering contracts representing credits from different sectors. For instance,
assessments by S&P Global Platts suggest that removal-based credits were priced well
Food, beverage & agriculture 5%
above credits from renewable energy-based projects (see Figure 14).
Retail 5%

Transportation services
FIGURE 14
4%

Biotech, health care & pharma 3%

Prices of standardized carbon credit contractsxliv
Apparel 1%
25

Average carbon credit price (USD)

Uptake across geographies
Hospitality <1%

0 250 Companies 0 50 100 150 200 250 300 350

26% Europe 39% 20

Removals
Asia & Pacific 35%

North America 18% 15

South America 5%

Africa 3%
10 Nature Based

Avoidance
Renewable Energy
5 CORSIA Eligible

0
Q1 Q2 Q3 Q4 Q1
2021 2022

xliv Source: Based on data from S&P Global Platts, 2022 by S&P Global Inc.

FOREWORD SUMMARY CHAPTER 1 CHAPTER 2 CHAPTER 3 ANNEXES 43

 However, increasing interest in removals has not yet translated into high
CORSIA eligible reflects carbon credits eligible for the International Civil transaction volumes. According to Ecosystem Marketplace, in 2021 the traded volume
Aviation Organization’s CORSIA program (Platts CEC assessment). of credits from reduction-based projects in the voluntary carbon market was 21
times higher than the traded volume of credits from removal-based projects. Two
Renewable energy reflects renewable energy carbon credits that avoid GHG factors likely explain the market dominance of reduction-based carbon credits. First,
emissions (Platts CNR assessment). information on removal-based credit transactions may not be available or recorded
in the market, as companies are starting to develop these projects themselves (see
Nature based reflects nature-based carbon credits from projects that either section 3.4 for more detail). Second, it is possible that supply of removal-based
avoid or remove GHG emissions (Platts CNC assessment). credits is currently limited due to the long lead times for these projects to produce
credits. Companies are also facing difficulties finding carbon credits from medium-
Avoidance is a basket assessment that reflects carbon credits from projects and long-term removal projects, which guarantee that emissions will be stored for
that avoid GHG emissions. This includes the Platts Household Devices, Platts more than 100 years.111
Industrial Pollutants, and Platts Nature-Based Avoidance assessments (Platts
CAC assessment). Forest and land use credits are closing the gap on renewable energy credits in
terms of credit issuance. Carbon credit issuances from forestry and land-use projects
Removals is a basket assessment that reflects carbon credits from projects that increased 159% over the past year, accounting for more than a third of total credit
remove GHG emissions from the atmosphere. This includes the Platts Natural issuances in 2021.xlvii Around 70% of these credits were generated in Asia, primarily
Carbon Capture and Platts Technological Carbon Capture assessments (Platts in Cambodia, Indonesia, and China, with most of the remainder generated in Latin
CRC assessment). America, led by projects in Brazil and Peru. Although most of these credits come from
projects to avoid emissions from deforestation and land use conversion, projects
More detail about the Platts’ different assessments can be found in Platts’ Specification to remove atmospheric emissions (such as afforestation, carbon sequestration in
Guide: https://www.spglobal.com/commodityinsights/PlattsContent/_assets/_files/en/our-
methodology/methodology-specifications/method_carbon_credits.pdf. agriculture, and improved forest management) contributed to a fifth of this growth.
While forest and land use credits have long been at the center of polarized debates
regarding additionality, permanence, and baseline accuracy,112 these projects are
The demand for removal-based credits is causing prices for these units to rise. gaining popularity as more buyers adopt net zero targets that depend on removals
High demand driven by the special role removals are set to play in meeting net zero to neutralize the emissions that cannot be reduced. However, moratoriums on the
targetsxlv and technological feasibility challenges that limit current supply likely development of carbon projects, such as the moratorium on Reducing Emissions from
explain the high price assigned to removal-based credits. According to S&P Global Deforestation and Forest Degradation (REDD+) projects in Papua New Guinea113 and
Platts, despite a 9% fall in price between February and March 2022,xlvi removal-based the moratorium in Fujian Province in China issued on NbSs,114 have raised concerns
credit prices increased by 48% in the past six months, rising to USD 19/credit in that other regions will follow suit, shrinking supply and causing price surges.
March 2022, whereas credits that reduce or avoid emissions were sold for only 40% Renewable energy credits remain, by a small margin, the most abundant credits in
of this price (see Figure 14). the market. They also offer some of the cheapest prices.115 The two major independent
crediting mechanisms (Verified Carbon Standard and Gold Standard) have since 2020

xlv Net zero is taken to be as per the Intergovernmental Panel on Climate Change definition: “human activities to result in no net effect on the climate system would require balancing residual emissions with
emission removals.”
xlvi According to market observers, this price drop might be attributed to the uncertainty faced by the beginning of the war in Ukraine. More recent data suggest that, as of April 2022, prices of nature-based carbon
credits have started to rebound. See R. Manuell, M. Tilly, and S. Reklev, “VCM Report: Nature-based VERs Continue Rebound after Bearish ‘Blip’ in March,” Carbon Pulse, April 11, 2022.
xlvii Forestry and land-use project types include afforestation/reforestation, avoided deforestation, improved forest management, avoided conversion, reduced emissions in agriculture, carbon sequestration in
agriculture, and wetland restoration. Climate Focus, “The Voluntary Carbon Market Dashboard,” 2022,

FOREWORD SUMMARY CHAPTER 1 CHAPTER 2 CHAPTER 3 ANNEXES 44

only accepted registrations of new large-scale renewable energy projects located in is reflected in the price increases for credits from project types considered to offer
least developed countries due to these projects elsewhere not requiring carbon finance broader co-benefits, including forestry and land use and household energy efficiency
to be economically feasible. Still, several projects registered before this date have project types, such as improved cookstoves.118 Verifying these co-benefit claims is
since increased their issuances substantially.xlviii important, and there are increasing efforts to develop tools to validate them in an
objective manner. Some efforts seen in the market include AirCarbon’s Sustainable
Projects in Asia, Latin America, and the Caribbean have supplied the majority of Development Token,xlix Verra’s Sustainable Development Verified Impact Standard
carbon credits. According to Ecosystem Marketplace, traded volumes of credits from program,119 and Gold Standard’s SDG Impact Tool.120
projects located in Asia more than doubled in the past year, representing 56% of the
total credits transacted in the market in 2021 due to volumes of renewable energy and
forestry and land use credits, predominantly from Cambodia and Indonesia. Although FIGURE 15
credits from Asia have offered the lowest prices, these increased from USD 1.60/ Multilayered purchaser decisions shape diverse markets and
tCO2e in 2020 to USD 2.97/tCO2e in 2021. 116
Credits transacted from Latin America and prices
the Caribbean accounted for 22% of total trade, dominated by forestry and land use
credits. Credits from Africa represented 15% of the total, with transacted volumes of
credits from the region reaching their highest levels yet, with prices also increasing
from USD 4.24/tCO2e in 2020 to USD 6.09/tCO2e in 2021.117
Voluntary market purchasers tend
to have more diverse preferences
Market heterogeneity is increasing, fueled by the diverse preferences and needs of than compliance purchasers Compliance or voluntary?
buyers. In the context of significant growth in voluntary commitments and increasing Purchasers seeking to offset their
diversity of buyers with different priorities and reasons for purchasing credits, emissions may be more likely to seek
credits with corresponding adjustments Contribution or compensation?
voluntary buyers’ purchasing decisions are likely to be increasingly heterogeneous,
Purchasers seeking credits to comply with net zero
with different buyers prioritizing price, quality, integrity, and other characteristics
strategies are more likely to prioritize removing
differently. Buyers’ options in international compliance markets are, for the most atmospheric carbon over avoided emissions Removals or reductions?
part, more limited because of the requirement to source only carbon credits with Consumer-facing companies are more
a corresponding adjustment. Figure 15 illustrates the main purchasers’ decisions likely to seek credits from “marketable”
shaping the market.
projects with multiple co-benefits Co-benefits or least cost?

The market is evolving to highlight other benefits of credits beyond GHG emissions
mitigation and to develop tools to verify them. For example, some co-benefits that
purchasers value relate to whether the underlying project contributes to achieving
one or more of the Sustainable Development Goals (SDGs). Credits with SDG benefits
are attractive to buyers as they offer an opportunity to make additional contributions
to sustainable development and for those contributions to be recognized in the
social and economic agenda. From project developers’ perspective, such credits
increase the potential to obtain price premiums in the market. This market dynamic

xlviii However, projects validated and submitted for project registration prior to December 29, 2019 are still eligible under the VCS for their full crediting periods.
xlix Each SDT represents a carbon emission unit accompanied by additional certifications or registry approved labels for sustainable development benefits that have been reviewed by third parties: AirCarbon,
“Exchange Tradable Assets.”

FOREWORD SUMMARY CHAPTER 1 CHAPTER 2 CHAPTER 3 ANNEXES 45

3.4 NEW FINANCIAL SERVICES AND TECHNOLOGIES ARE exchanges are increasingly offering standardized contracts that ensure compliance
ENTERING CARBON CREDIT MARKETS with quality criteria for nature-based, energy, or household device carbon projects.
Greater standardization can bring more transparency and liquidity by facilitating the
Rapidly growing credit demand is encouraging new players to enter the market and generation of accurate market data. However, it also increases the risk of various
forcing market players to find creative ways to adapt to new dynamics. At the same projects being lumped together under a larger type of contract, thus blurring the
time, the market’s fragmented and decentralized nature continues to raise challenges differences between them. Finally, greater standardization would also open the
in ensuring transparency and liquidity. door to speculative practices that could ultimately be a major driver of carbon credit
market growth but also volatility.125
The role of financial actors in carbon credit markets has grown considerably in
the past year. Financial actors are increasingly involved at the implementation Trading dynamics are changing, led by companies with long-term commitments
phase of carbon projects, providing capital and risk-hedging mechanisms to project seeking ways to secure future offsetting needs. In 2017, volumes of credit
developers who previously had to rely primarily on equity and grants for their upfront retirements were similar to reported volumes for transactions, but two years later
investments. 121
Financial players are also increasingly acting as intermediaries for reported transaction volumes were nearly 40% higher than retirement volumes. In
voluntary carbon credits transactions. In recent years, the institutional landscape 2021, reported transaction volumes were 129% higher than retirement volumes.126 In
of carbon credit markets has changed significantly with the creation of new a rising price context, this growing difference between transaction and retirement
carbon exchanges, the merger of preexisting ones, 122
and the entry into the market suggests that buyers are increasingly moving toward long-term buying to secure
of other financial entities—such as commodity exchanges or banks—that were future needs or resell at a higher price later. One would expect the price and the
not originally linked to carbon markets. 123
These new players provide a range of volume of forward contracts traded to reflect this transition toward long-term
services including trading platforms, derivatives, and carbon quality standards. This buying. However, this is not the case: Available market data from Ecosystem
fundamentally changes the nature of transactions by introducing new mechanisms Marketplace suggests that spot contracts still dominate the market, with nearly six
for price determination. The prices of standardized contracts are increasingly used as times more volume traded than forward contracts, and forward contracts remain
benchmarks, companies have begun to develop price assessments for different types slightly cheaper than spot contracts (USD 3.57 and USD 4.08, respectively, as of the
of carbon credits,l and portfolio auctions for carbon credits have emerged.li third quarter of 2021).127 One reason for this might be that currently available market
data do not capture specific types of deals that involve future purchases. In such
New players and financial services are moving the carbon credit market toward deals, big corporations partner with project developers and provide capacity and
greater standardization, raising both opportunities and challenges. Transaction upfront investment in carbon projects to secure future carbon credits and eventually
data from standardized contractslii are scarce and scattered, making it difficult to sell extra credits to make a profit. For instance, in late 2021, multiple joint ventures
assess their real importance in the market. While over-the-counter transactions between capital providers and developers announced the development of new nature-
remain the norm in carbon credit markets, available indicators suggest that, in based projects, with some representing large financial values and issuance volumes.128
recent years, standardized transactions have grown significantly. For example, in
2021 the total volume of carbon credits traded on one of the major carbon exchanges,
the Xpansiv CBL exchange, exceeded 121.5 million, an increase of 288% from
2020.124 The supply of standardized contracts has also diversified. For example,

l See for instance S&P Global, “Platts Carbon Credit Assessments”; and Nasdaq’s recently launched carbon removal indexes: Nasdaq, “Nasdaq Launches World’s First Carbon Removal Indexes,” March 24, 2022.
li For example, in November 2021, the global carbon credit exchange and marketplace Climate Impact X (CIX) conducted a first-of-its-kind portfolio auction of voluntary nature-based carbon credits: DBS, “CIX
Completes First-of-its-Kind Portfolio Auction of Voluntary Nature-based Carbon Credits with Leading Global Companies,”November 4, 2021.
lii Standardized contracts refer to transactions involving packages of carbon credits with certified common characteristics (project type, vintages, and/or issuing standards) and sold as standard products by carbon
exchanges. Standardized contracts can be distinguished from (nonstandardized) over-the-counter transactions.

FOREWORD SUMMARY CHAPTER 1 CHAPTER 2 CHAPTER 3 ANNEXES 46

The development and diffusion of new technologies, in particular blockchain-
related technologies, is shaping trading practices in carbon credit markets. While BOX 9
the mobilization of blockchain has gained traction in recent years, the past year has
seen the emergence of a new phenomenon with efforts to make carbon credit markets
What is tokenization?
interoperable with decentralized finance. Decentralized finance allows peer-to- Tokenization is the process by which an issuer creates a digital representation
peer financial transactions without third parties, enabled by cryptocurrency, smart of something of value on a distributed ledger or blockchain, which
contracts, and other digital technology innovations. represents either digital or physical assets. Tokens can only be sold or
transferred by their owners, ensuring they represent unique and unforgeable
While the use of these technologies in carbon credit market transactions will likely representations. Tokens may also confer governance rights to users, dictating
continue to grow, it is critical to understand and address the potential risks before how they should be used and what type of information should be encoded
they are fully embraced. The deployment of these new technologies has the potential with them. Many blockchain platforms have developed standards to help
to help scale up the carbon credit market and break down silos between registries ensure interoperability across platforms and tools, as well as to promote
while providing traceability, liquidity, security, and trading efficiency. However, security properties of the token. Carbon tokens can incorporate provenance
they may also provide opportunities for destabilizing speculative practices and add data and information about how the token may be used or traded, which has
an additional layer of complexity in a market that is already intensely fragmented. 129
been provided by the issuer.
In compliance markets, these technologies are also being explored to ensure that
emission reductions or removals are accounted for properly, avoiding “greenwashing” If tokens are created through a standardized process, their increased
activities outside this market. Nevertheless, these new practices have gained traction accessibility can improve traction and support overall market liquidity.
and attracted the attention of major carbon credit markets players. While the use of Information about the movement of carbon tokens as they are traded can
blockchain-based structures for compliance markets has been increasingly explored be made visible and tracked, including when the token is retired and can no
for some years now, 130
the International Emissions Trading Association has recently longer be transacted. In this context, when a token is marketed as providing
formulated a set of initial recommendations and launched a Task Force on Digital the impact a carbon credit represents (i.e., a GHG reduction or removal) it
Climate Assets to explore and work on guidelines for blockchain-based carbon must be independently verified against a set of rules and requirements. This
markets.131 process aims to guarantee that any token billed as reducing or offsetting GHG
emissions has all fundamental attributes of carbon credits, such as namely
The automated processes embedded in blockchain networks encourage rapid, but real, additional, permanent, robustly quantified, independently verified, or
not always smooth, technological and financial innovation. Digital infrastructure uniquely claimed.
projects like the Toucan Protocol have provided a one-way “carbon bridge” for
tokenizing carbon credits, by buying and retiring more than 18 million credits
from the Verra registry while issuing new (notionally equivalent) on-chain assets
called “Base Carbon Tonnes.” In turn, tokenization through the Toucan Protocol
has enabled efforts such as KlimaDAO, a decentralized autonomous organization
aiming to accelerate price appreciation of carbon assets. Within weeks of its launch The entrance of new financial services and technologies into carbon credit
in November 2021, KlimaDAO acquired over 9 million tokenized carbon assets, 132
markets has drawn criticism, resulting from the perceived potential to obscure
liii
but triggered controversy within its developer and user community after bridging integrity and quality in decentralized carbon markets. A number of efforts,
verified carbon units from a project type that was discredited in the early 2010s, a including the World Bank’s Climate Warehouse initiative, are aiming to demonstrate
hydrofluorocarbon destruction project in Yingpeng, China. 133
the viability of decentralized approaches to connecting carbon markets, while

liii Bridging refers to the process of retiring a carbon credit on the originating parent registry and
creating an un-duplicable digital representation of that credit through a blockchain-based process.

FOREWORD SUMMARY CHAPTER 1 CHAPTER 2 CHAPTER 3 ANNEXES 47

enhancing transparency and trust.134 In addition, blockchain technology companies BOX 10
are attempting to improve the perceived quality of credits brought to the chain by
restricting access to old vintages135 and emitting tokenized units following specific
The finalized Article 6 Rulebook provides room for
quality criteria.136 Some public registries have suggested that simply issuing a token
flexibility in voluntary transactions
does not confer legal rights to the underlying credit or impact that a token is stated to The finalized Article 6 rules provide flexibility to project host countries
represent. 137
For instance, the Gold Standard Registry stressed that the registry of the in how voluntary carbon market transactions can take place. These may
standard that issued the credit is the “source of truth” for the status of that credit.138 range from not requiring corresponding adjustments for using carbon
In addition, it highlighted that any secondary market, blockchain-based or otherwise, credits for voluntary commitments to a blanket requirement for Article 6
needs to comply with the issuing standard’s terms and conditions to ensure legal authorization and thereby the application of a corresponding adjustment
ownership of the credit and communicate any change in status of the credit back to for any carbon credit that is transferred out of the jurisdiction.
the registry139—a statement echoed in IETA’s recommendations on the use of digital
climate assets.140 A number of countries have already committed to the principle of
correspondingly adjusting carbon credits certified under independent
standards and used by corporate actors for voluntary climate commitments,

3.5 THE GOVERNANCE OF CARBON MARKETS CONTINUES TO led by a group of countries that signed on to the San José Principles.liv
Some countries have also already committed to applying corresponding
EVOLVE adjustments for individual projects,lv although such commitments do not
represent a streamlined country strategy for corresponding adjustments
Governance frameworks are emerging that seek to promote integrity and clarity in an yet. Other countries have been reluctant to commit to corresponding
increasingly complex and diverse market. These come alongside the adoption of rules adjustments for credits used in the voluntary carbon market.
under Article 6 of the Paris Agreement.

Six years after Paris, at COP26, attending nations agreed on the modalities,
procedures, and guidelines for implementation of carbon markets under Article
6 of the Paris Agreement. These rules represent a major milestone, creating a path
for international carbon markets to contribute to meeting NDC goals and support
scaling up climate ambition through voluntary cooperation. The share of parties
indicating planned or possible use of voluntary cooperation mechanisms under Article
6 has nearly doubled, from 44% to 87% in the new or updated NDC submissions.141
According to an analysis carried out by IETA, implementing NDCs cooperatively
rather than independently through Article 6 could save governments more than USD
300 billion per year by 2030.142 Some countries have already initiated procurement of
emission reduction credits in this context. The Article 6 rules agreed upon in Glasgow
explicitly embrace the diversity of carbon markets. Under the new rules, governments
will be able to decide the type of projects that will be developed in their countries and
have control over whether to authorize the emissions reductions from those projects
liv The San José Principles Coalition recommitted after COP26 to Principles for High-
(see Box 10). This decision is likely to lead to further divergence in approaches, credit Integrity Carbon Markets, including to corresponding adjustments for all compliance
types, and prices. uses, as well as applying corresponding adjustment to support voluntary corporate
climate commitments. The endorsers include Colombia, Costa Rica, Fiji, Finland,
Marshall Islands, Peru, and Switzerland.
lv Including Nepal and Rwanda.

FOREWORD SUMMARY CHAPTER 1 CHAPTER 2 CHAPTER 3 ANNEXES 48

How purchasers and host governments prioritize corresponding adjustments will Despite the consensus that carbon credits will play a role in corporate
significantly shape market transactions of carbon credits. Some governments may decarbonization, their role must also balance the need for direct action by
be predisposed to absorb as many of the lower-cost emission reduction opportunities businesses to reduce emissions. A recent analysis of net zero targets found that
for their own NDCs before allowing corresponding adjustment for carbon credits headline targets are often ambiguous, emission reduction commitments are limited,
from independent standards and exporting the abatement outcome. On the other and corporate plans to offset their emissions are quite controversial.146 The research
hand, focusing on hosting projects without corresponding adjustments would allow pointed to, among others, major oil companies claiming fossil-based activities as
governments to leverage voluntary commitments and attract investments to help carbon neutral by relying on carbon credits. Some environmental groups are pushing
achieve their NDCs, though these credits may be less attractive to buyers. for governments to set stronger regulations on the demand side to encourage
corporations to invest in innovation and accelerate decarbonization. Civil society and
Given the capacity and information needs for host countries, project developers, consumers are increasingly examining the carbon neutrality claims of corporates
and carbon credit buyers to adapt to new Article 6 infrastructure, it will take time and in some cases filing lawsuits citing misleading claims, such as the case of Arla’s
for Article 6 to become fully operational. For project host countries, developing an carbon neutrality claim reported by the Swedish Consumer Agency.147
international carbon credit market strategy requires extensive knowledge, capacities,
and infrastructure to understand how participation in the international carbon There remain significant debates about how to ensure the quality and integrity
market contributes to achieving their mitigation targets. For project developers, the of carbon credits. The fundamental challenge is that the climate benefits from
emerging context of fragmented and interacting markets means that they need to carbon credits can only be estimated against a reference scenario, never observed.148
deal with different strategies and requirements in different host countries. Securing Ensuring integrity requires a strong additionality case—which is extremely difficult
a commitment to corresponding adjustments from host countries for their projects to operationalize across project types—and robust and conservative baselines and
may require an extra step, which may imply longer timelines for project development quantification of emission reductions or removals. For example, concernslvii have
and implementation. A number of project developers have already secured such a been raised regarding ICAO’s recent acceptance of High Forest Low Deforestation
commitment to corresponding adjustments from host country governments in which (HFLD) credits under the Architecture for REDD+ Transactions standard as eligible for
lvi
their projects are situated. CORSIA.149

The flexibility provided by the Article 6 rules gives the voluntary carbon market A range of initiatives are emerging to address ongoing integrity concerns by
more scope to scale quickly, but carries risks. Unless consumers and investors guiding the supply and demand toward high-integrity credits and net zero
can navigate terminology and differentiate project claims, the market’s flexibility strategies. This includes the Integrity Council for the Voluntary Carbon Market, a
could facilitate greenwashing. 143
The different bifurcations may create additional private-sector-led initiative working on scaling up the transactions for voluntary
uncertainty for buyers on identifying which credits or offsets they can credibly claim commitments by promoting high-quality credits and standardization of contracts
among their climate commitments. Inconsistent claims on the role and legitimacy of to improve liquidity.lviii The Integrity Council for the Voluntary Carbon Market’s
credits may confuse and discourage potential voluntary purchasers, especially retail Phase II report contains guidance for establishing a global governing body for
customers, which could cloud transparency and dampen demand. 144
Many observers, voluntary carbon transactions, standardizing the legal framework for the market, and
particularly institutional investors, still prefer a more uniform carbon credit market, implementing core carbon principles for credit integrity.lix
to minimize inefficient fragmentation and consolidate liquidity around a smaller set
of commonly understood credit types.145 Getting the balance right will be a major
determinant of the long-term scale and success of carbon markets.

lvi These include Atmosfair, a German nongovernmental organization, which signed deals with Nepal for corresponding adjustments for credits from its projects. Atmosfair, “Government of Nepal and German NGO
Atmosfair Agree on Landmark CO2-offset Cooperation,” October 29, 2021.
lvii HFLD represents jurisdictions with extensive forests and historically low levels of deforestation. In this case, concerns are focused on the challenges of proving additionality and setting credible baselines where
countries have only experienced limited amounts of deforestation in the past.
lviii The Integrity Council was formed in October 2021 based on the initial work of the Taskforce on Scaling Voluntary Carbon Markets in 2020-2021. It released its Phase II report in 2021.
lix The IC-VCM is the new governance body convening government, financial markets, NGOs, science, academia, civil society, business, and local communities with the aim of setting and enforcing global standards
for the voluntary carbon market. Phase II of the Taskforce on Scaling Voluntary Carbon Markets informed the formation of the Integrity Council. Taskforce on Scaling Voluntary Carbon Markets, Phase II Report,
July 8, 2021.

FOREWORD SUMMARY CHAPTER 1 CHAPTER 2 CHAPTER 3 ANNEXES 49

BOX 11 Article 6 activities are steadily moving closer to transactional stages and potentially
offer an opportunity to test different contractual structures. And while no blueprints
Article 6 Activities or templates for Article 6 transactions have yet fully emerged, bilateral collaboration
Operationalization of the Article 6 market is highly dependent on the readiness frameworks that have been developed to date typically include similar elements such
of participants. The adoption of the Article 6 Rulebook at COP26 has provided as a commitment to apply corresponding adjustments and reporting modalities.
greater certainty on the applicable rules, and provided the clarity on the capacity, Several agreements, in different shapes and forms, have been formalized by countries
infrastructure, and system requirements that are needed to support strategic throughout 2021.150,151
engagement and transactions under Article 6. The importance of building Article 6
readiness is reflected in the COP26 decision and the subsequent UNFCCC Secretariat In parallel, early movers have started to design mitigation outcome purchase
work program to design and implement a capacity-building program for developing agreements, which set out commercial arrangements around prices, payment
countries that wish to participate in Article 6. structures, and delivery modalities for Article 6 transactions. It is proving challenging
to translate Article 6 transaction structures into contracts, for example linking or
While no ITMOs have been transacted to date, countries looking to become Article conditioning payments for mitigation outcomes to the application of corresponding
6 hosts have started to develop their engagement strategies and needed processes, adjustments and managing and allocating transaction risks. Contractual options
including for ITMO authorizations, with potential buyer countries participating in continue to be theoretical and poorly understood. Stakeholders also struggle with a
Article 6 transactions. Today, Article 6 readiness activities focus on strengthening lack of information on opportunity costs for meeting NDCs in the future.
participants’ capacities, developing policy frameworks, and building the necessary
infrastructures for Article 6 transactions. Examples include Recognizing that Article 6 rules at COP26 permit countries to authorize ITMOs for
• the work of the Global Green Growth Institute to support countries in designing use in voluntary carbon markets, independent crediting standards such as the Gold
lx
policy and governance frameworks for engaging in Article 6 transactions, Standard are getting more engaged in Article 6 activities and are taking steps to
lxi
completing transactions from scalable projects and programs, and developing facilitate Article 6 transactions. This includes, for example, adapting their registry
lxii
approaches to foster private sector engagement; systems and improving overall transparency and trackability of credit transactions
• the World Bank’s Partnership for Market Implementation support to develop linked or not linked to a corresponding adjustment. The recent partnership
infrastructures, strategies, and policy frameworks for countries’ participation in announcement by the Swedish Energy Agency and Gold Standard, under which
international carbon markets; the Swedish Energy Agency will use adapted Gold Standard rules, framework, and
• the UNDP’s country support to develop Article 6 regulatory frameworks and the infrastructures to facilitate its Article 6 transactions,152 is an example of the blurring
establishment of ITMO process flows; lines between the voluntary and compliance markets.
• Japan’s funding capacity building for participating in the Joint Crediting
Mechanism (JCM); and
• the West African and Eastern Africa Alliances on Carbon Markets both continue to
support countries in their regions to create an enabling environment for Article 6
collaboration.

lx The Designing Article 6 Policy Approaches program is supported by and implemented together with the Norwegian Ministry of Climate and Environment and looks to develop programs in Indonesia, Morocco,
Vietnam, and Senegal.
lxi The Mobilizing Article 6 Trading Structures program is supported by and implemented together with the Swedish Energy Agency. Activities are currently underway in Cambodia and Nepal.
lxii The Supporting Preparedness for Article 6 Cooperation is supported by and implemented in collaboration with the International Climate Initiative, and expected to start in 2022. The program anticipates
implementing more than eight Article 6 pilot programs across Colombia, Pakistan, Thailand, and Zambia.

FOREWORD SUMMARY CHAPTER 1 CHAPTER 2 CHAPTER 3 ANNEXES 50

In addition, the Voluntary Carbon Market Initiative, a multistakeholder initiative Based on this guidance, an increasing number of companies are seeking to
developed to drive credible engagement with the crediting market, released initial demonstrate their climate ambition. Globally, just under 2,500 companies worldwide
guidance for aligning the voluntary carbon market with the Paris Agreement’s have now signed up to the SBTi, and just under half (1,155) have approved science-
goals and for maintaining market integrity from the demand side. Priorities include based targets.156 By the end of 2021, following the SBTi’s updated guidance and
providing robust approaches to set companies’ targets, defining claims, and using its “Business Ambition for 1.5°C” campaign, 1.5°C-aligned targets were the most
high-integrity credits. 153
These initiatives are sharpening recommendations on common target type submitted by the corporate sector, accounting for 75% of
promoting higher integrity offsetting claims, including which types of credits can be all targets submitted throughout the year. Although many of the net zero targets
used for which types of claims. announced by different groups are less ambitious than the Paris Agreement requires,
overall 1,045 companies representing USD 23 trillion in market capitalization have
Several governance initiatives that offer carbon credit quality assessments are committed in the past year to set targets that align with a 1.5°C pathway.157
beginning to emerge. lxiii
For instance, the World Wildlife Fund, the Öko-Institut,
and the Environmental Defense Fund launched the Carbon Credit Quality Initiative, Several groups are prioritizing the role of removals versus reductions for limiting
which aims to deliver an interactive web application for scoring carbon credit quality. global warming to 1.5°C and achieving net zero; however, the deployment of
Private companies such as BeZero, Sylvera, and Calyx Global are providing similar certain removal technologies at the time and scale needed has not yet occurred.
services. The World Bank provides an assessment framework for assessing differing Initiatives such as the Oxford Principles for Net Zero Aligned Carbon Offsetting and
qualities of mitigation activities in four areas—environmental integrity, management the SBTi have encouraged companies to prioritize offsets that remove carbon from
entity, financial structure, and sustainable development benefit. 154
Along with the atmosphere (for instance through reforestation or direct air carbon capture) over
initiatives rating the quality of carbon credits, this will likely see credit pricing linked reduction-based offsets that derive from efforts to prevent extra carbon emissions
to whether credits meet a given set of quality standards. entering the atmosphere. However, as described in section 3.3 meeting this demand is
challenging due to limited supply and the difficulty in guaranteeing the permanency
Another set of initiatives is supporting companies in setting and meeting their of those emissions underground in the long term. Supplying removal-based credits
climate targets and increasing their ambition while setting specific rules on how based solely on new technologies such as direct air capture still has prohibitive prices,
carbon credits can be used for compliance. Examples include the Climate Action up to USD 600/tCO2 sequestered.158
100+, Transform to Net Zero, the Climate Pledge, and the UN Race to Zero. Over the
past year, the Science-Based Targets Initiative (SBTi), a multistakeholder initiative
developed to promote best practice in corporate climate target setting in line with
climate science, saw considerable progress. In July 2021, the initiative published its
Corporate Net Zero Standard, which specifies restricted scenarios in which the use
of carbon credits will be accepted for meeting net zero targets.lxiv It also announced
upcoming changes to its definition of “science-based,” which will change from
2°C or below to 1.5°C or below. Starting in June 2022, the initiative will no longer
accept target submissions that fall below this level, in a bid to drive up ambition.
Despite these positive developments, the SBTi came under criticism from civil society
voices and companies for a range of transparency and methodological issues in
2021, including concerns that its target-setting approach may not align with global
temperature goals.155

lxiii Some of these initiatives are relatively new and are still in the pilot stage, and only a few have publicly disclosed their assessment methodology.
lxiv The standard specifies that the only instance in which the use of offsets will be accepted is to compensate residual emissions that lie outside the scope of a company’s science-based and net zero targets. The
guidance restricts the use of offsets by companies for compensation purposes that replace direct emission reduction activities.

FOREWORD SUMMARY CHAPTER 1 CHAPTER 2 CHAPTER 3 ANNEXES 51

Annex A

Methodologies
and sources

FOREWORD SUMMARY CHAPTER 1 CHAPTER 2 CHAPTER 3 ANNEXES 52

1. Sources and timelines: The State and Trends of Carbon Pricing 2022 report • RGGI price data is the weighted average of the allowance transfer transaction prices
draws on a range of sources, including official reporting (i.e., government budget on March 31, 2022 for 01/01/2021-12/31/2023 allowance control period converted
documents), related legislation that underpins the carbon pricing initiative, from USD/short tons CO2e to USD/metric tons CO2e.163
statements from governments and public authorities, and information provided by • UK ETS price data is the UK Allowance (UKA) Futures Price for December 2022
jurisdictions. Data and updates in the report represent the situation as of April 1, contract on April 1, 2022.164
2022, unless stated otherwise.
7. Revenue: For jurisdictions with fiscal year starting on April 1, the revenue between
2. Carbon pricing instruments: The authors recognize that classifications of carbon January 1, 2021 and December 31, 2021 is estimated by the addition of one-quarter of
pricing instruments other than those used in this report are possible. “ETS” refers the April 1, 2020–April 1, 2021 revenue and three-fourths of the April 1, 2021–April
not only to cap-and-trade systems but also to baseline-and-credit systems. 1, 2022 revenue estimate. French carbon tax revenue for fiscal year 2021 was not
released before the report was finalized. The revenue figure estimate is provided by
3. Emissions: Information on GHG emissions is based on 2018 EDGAR v6.0 GHG the French Treasury officials.
emissions data, 159
where available, or 2018 emissions data from official sources to
be consistent across jurisdictions. 8. Exchange rate conversions: Price and revenue data are converted from national
• GHG emissions values for Canadian provinces and territories are taken from currency to USD using the IMF exchange rates on April 1, 2022.165
Canada’s submission to the UNFCCC.160
• GHG emissions values for US states are based on official subnational GHG 9. 2021 ETS price developments: Price development data is taken from the
inventory reports of each of the respective states. International Carbon Action Partnership’s Allowance Price Explorer, which has up-
to-date information on allowance prices in ETSs. The following sources were also
4. Coverage: The proportion of global GHG emissions covered by a direct carbon price drawn upon: California (the California Air Resources Board website), EU ETS (spot
is calculated based on direct carbon pricing instruments in operation. The calculation price data is provided by the European Energy Exchange group), Québec (the Ministry
of emissions coverage by carbon pricing instruments is based on official government for the Fight Against Climate Change website), RGGI (RGGI website), Switzerland
sources but does not necessarily factor in exemptions and/or emissions thresholds. (Intercontinental Exchange and the Swiss Emissions Registry).

5. Status of carbon pricing instruments: Carbon pricing instruments are considered 10. Crediting mechanisms: In the Republic of Korea’s offset crediting mechanism, the
“scheduled for implementation” once they have been formally adopted through number of issued credits refers to credits converted to Korean Credit Units, which
legislation and have an official, planned start date. Carbon pricing instruments are can be surrendered for compliance in the national ETS.
considered “under consideration” if the government has announced its intention
to work toward the implementation of a carbon pricing initiative and this has been 11. Crediting demand data: Voluntary carbon market data is provided by Forest
formally confirmed by official government sources. Trends’ non-profit initiative Ecosystem Marketplace. Ecosystem Marketplace data
contains trade details such as price, volume, and other carbon credit project and
6. Price: Additional price information is further clarified here: transaction attributes. The dataset for 2021 had not been finalized by the time
• As Mexico is currently operating its pilot ETS with 100% free allocation, there is this report was published and therefore market value figures do not represent a
no price information currently available. complete annual picture. However, Ecosystem Marketplace’s dataset remains the
• Massachusetts ETS price data is equal to the March 18, 2022 auction clearing most comprehensive available for the 2021 calendar year. Ecosystem Marketplace
price. 161
will release updated 2021 figures later in 2022 once data from all respondents has
• California and Québec cap-and-trade price data is the California Carbon Allowance been collected.
Vintage 2022 Futures for April on April 1, 2022. 162

FOREWORD SUMMARY CHAPTER 1 CHAPTER 2 CHAPTER 3 ANNEXES 53

Annex B

Carbon tax
and ETS updates

FOREWORD SUMMARY CHAPTER 1 CHAPTER 2 CHAPTER 3 ANNEXES 54

This section outlines significant developments in regional, national, and subnational Another process is the discussion of bills at the Brazilian National Congress, including
carbon taxes and ETSs worldwide. Where no significant changes occurred over Bill 528/2021. This bill would create the Brazilian Market of Emission Reductions and
the past year, these mechanisms/jurisdictions are not included. For more detailed give the government a period of five years to develop regulations for the national
information on all carbon taxes and ETSs, please refer to the Carbon Pricing program of emission reductions. One version of this bill, which is currently being
Dashboard, an interactive online platform that provides up-to-date information on discussed, would provide for an ETS in Brazil. In this context, several proposals from
existing and emerging carbon pricing instruments around the world. the private sector and civil society have also emerged around the establishment of an
ETS in the country.
ARGENTINA
The quarterly tax rate update for 2021 was postponed until 2022 for gasoline and BRUNEI
gasoil. In 2021, Brunei Darussalam explored a preliminary scoping for carbon pricing which
includes an emission threshold as well as targeted sub-sectors. The government also
AUSTRIA conducted a workshop on carbon pricing policies that aims at shaping the direction
Austria will implement a carbon levy of of EUR 30 (USD 33)/tCO2e in July 2022 under for carbon pricing policy in the country as well as learning from the experiences
its national ETS as part of broader fiscal reforms in the Eco-Social Tax Reform Act of other countries. The workshop was co-organized by the Brunei Climate Change
2022 (Ökosoziales Steuerreformgesetz 2022) that also plans to reduce corporate and Secretariat and the ASEAN Centre for Energy with support from the Institute of Policy
income tax rates. The national emission trading system covers mainly heating and Studies of the University of Brunei Darussalam.
transportation emissions not covered under the EU ETS.
CANADA
The rate is planned to rise to EUR 35 (USD 39)/tCO2e in 2023, to EUR 45 (USD 50)/ On February 2021, the federal government launched its review of the output-based
tCO2e in 2024, and to EUR 55 (USD 61)/tCO2e in 2025 during the fixed-price phase. pricing system (OBPS) regulations. The consultation paper proposes an annual
A market phase will follow from 2026, subject to a review in 2024 and considering tightening rate of up to 2% for facilities under the OBPS from 2023 (depending
developments on the EU level. on carbon leakage risk). More stringent performance standards are proposed to
contribute to Canada’s strengthened GHG emissions reduction goals. Proposed
BOTSWANA amendments are anticipated to enter into force in 2023.
Parliament approved Botswana’s National Climate Change Policy during 2021, which
establishes a commitment to explore the development of a carbon price, including In August 2021, the federal government released updates to its benchmark, which
adopting and enforcing a carbon tax. confirms the minimum national carbon prices for the period 2023 to 2030 and
strengthens the minimum national stringency criteria for carbon pricing systems in
BRAZIL Canada.
At the end of 2021, the presidency of the Republic released for public consultation a
draft law creating the National Policy on Climate Change and Green Growth, which The federal Greenhouse Gas Pollution Pricing Act, which sets a minimum national
would establish the objectives, principles, and guidelines of a potential carbon pricing standard on GHG emissions pricing, has been subject to recent court challenges by
instrument. multiple provinces. On March 25, 2021, the Supreme Court of Canada ruled that the
legislation is constitutional.
Two parallel and ongoing processes are considering the implementation of an ETS in
Brazil. One is the “Consideration of Environmental Benefits in the Electricity Sector” The fuel charge rates are based on a carbon price of CAD 50 (USD 40)/tCO2e in 2022.
under Law 14,120/2021, coordinated by the Energy Research Corporation (Empresa de The recent revision to the policy extended the price trajectory up to 2030, with the
Pesquisa Energética [EPE]) and the Ministry of Mines and Energy, with the support minimum rate increasing by CAD 15 (USD 12)/tCO2e each year, until it reaches CAD 170
of the International Energy Agency. In workshops organized by the EPE in 2021, (USD 136)/tCO2e in 2030.
stakeholders discussed the possibility of implementing an ETS in the power sector, as
well as different design options.

FOREWORD SUMMARY CHAPTER 1 CHAPTER 2 CHAPTER 3 ANNEXES 55

TABLE B.1
Carbon pricing developments in selected Canadian provinces and territories

JURISDICTION RECENT DEVELOPMENTS

Alberta The fixed-price compliance option under the Technology Innovation and Emissions Reduction Regulation increased from CAD 40 (USD 32)/tCO2e in 2021 to
CAD 50 (USD 40)/tCO2e in 2022.

British Columbia On April 1, 2021, BC's carbon tax rate rose from CAD 40 to CAD 45/tCO2e. The rate is scheduled to increase to CAD 50/ tCO2e on April 1, 2022. BC recently
committed to exceeding the federal backstop rate, which is scheduled to rise to CAD 170 by 2030.

New Brunswick The New Brunswick OBPS has replaced the federal OBPS in this jurisdiction.

Newfoundland and Adjustments to carbon tax rates took effect on July 1, 2021.
Labrador

Nova Scotia The current federal approval for the province’s carbon pricing system expires after 2022 and Nova Scotia is reviewing options for post-2022 carbon pricing.
Nova Scotia held a public consultation in 2021, which covered carbon pricing as well as broader environmental goals and climate change policies.

Ontario Ontario transitioned from the federal OBPS to the Ontario Emissions Performance Standards program as of January 1, 2022.

Québec The fourth compliance period began in January 2021 and new regulations took effect, including amended price tiers for allowances in the reserve account,
to align with the California Cap-and-Trade Program.

For the 2021–2023 period, assistance was adjusted based on each sector’s carbon leakage risks. Emissions-intensive trade exposed (EITE) sectors are
categorized as having low, medium, or high risk, with assistance factors of 90%, 95%, and 100% respectively. Prior to 2021, assistance factors for all EITE
sectors were set at 100%.

In early 2021, Québec also announced potential changes to the free allocation rules for the period 2024–2030.

Saskatchewan Changes to the federal backstop have forced a redesign of Saskatchewan’s OBPS. The province is currently developing OBPS 2023, to be implemented on
January 1, 2023.

FOREWORD SUMMARY CHAPTER 1 CHAPTER 2 CHAPTER 3 ANNEXES 56

CHILE CHINA
Chile’s draft Framework Law on Climate Change was approved by the Senate in 2021 saw China’s national ETS complete its first full compliance cycle, with a reported
October 2021 and was passed to the Chamber of Deputies to continue its legislative compliance rate of 99.5%. Over 2,100 large emitters in the power sector were
process. The draft Framework Law defines a system in which the Ministry of obligated to participate during this cycle, covering about 4.5 billion tCO2e per year—
Environment would establish GHG emissions limits for individual or groups of over 30% of China’s total GHG emissions. Prices for emissions allowances remain
emitting sources (in tCO2e/year). relatively low compared to other pricing systems, closing at around CNY 54.2 (USD
8.5)/tCO2 on December 31, 2021, the last day of the first compliance cycle.
In December 2021, the Chilean government recommended a carbon tax of at least
USD 35/tCO2 by the end of the decade as part of an updated Energy Policy 2050. The
new president-elect proposed a Green Tax Reform including a gradual increase of the
carbon tax up to USD 40/tCO2, but no timeframe was specified.

TABLE B.2
Developments in China’s subnational pilots

JURISDICTION RECENT DEVELOPMENTS

Chongqing Auctioning was introduced in 2021, with two auctions held at the end of 2021. The first auction, held in November 2021, sold 3.5 million allowances on offer
while the second auction in December sold 5.3 million allowances. In addition, from October 2021 liable entities can use carbon credits from the Chongqing
carbon offset mechanism to offset up to 8% of their emission liabilities.

Fujian The Fujian ETS achieved 100% compliance for 2020.

The province’s first integrated carbon market service platform was launched in December 2021.

The Fujian Provincial Department of Ecology and Environment released the latest publicly available detailed allocation plan, for 2020, in October 2021.

Guangdong The Guangdong ETS achieved 100% compliance for 2020.

Power sector entities transitioned to the national ETS after 2020, which was reflected in the 2021 allocation plan released in December 2021. The allocation
plan also stated that, from 2022 onwards, the threshold to enter the compliance market will drop from 20,000 tCO2 to 10,000 tCO2/year.

Hubei The Hubei Department of Ecology and Environment released the 2020 allocation plan in September 2021, which included adjustments to the cap to reflect
the transfer of power sector entities into the national ETS.

Two auctions were held in 2021, with close to 2.8 million allowances auctioned.

FOREWORD SUMMARY CHAPTER 1 CHAPTER 2 CHAPTER 3 ANNEXES 57

 Shanghai Shanghai released its 2020 allocation in January 2021, which reflected the transition of the power sector (including 19 coal-fired power plants) to the
national ETS and the addition of 27 new companies, representing a record for the highest number of companies included in the Shanghai regional carbon
market since its launch. Auctions were held in August and September 2021, generating a total revenue of CNY 21.59 million.

Shenzhen The Shenzhen ETS achieved 100% compliance for 2020.

In June 2021, the Shenzhen Municipal Bureau of Justice released draft Interim Measures for the Management of Carbon Emissions Trading for public
consultation, which included (among other things) a potential transition to an absolute cap and an increase in the number of allowances auctioned.

Tianjin The Tianjin ETS achieved 100% compliance for 2020.

The Tianjin pilot held two auctions in 2021 and sold 3.5 million allowances.

In September 2021, the Standing Committee of Tianjin Municipal People’s Congress issued the Tianjin Carbon Peaking and Neutrality Promotion
Regulations. For the first time, this regulation formally introduces financial penalties for noncompliance in the regional carbon market through high-level
regional legislation.

COLOMBIA • Fiscal instruments to internalize the environmental costs of solid waste in Côte
Law 2169 of December 2021 established that, as of 2023, half of carbon tax revenues d’Ivoire,
will be used, among others, in coastal erosion management, conservation of water • Vehicle taxation reform in Côte d’Ivoire: The ecological bonus-malus,
sources, and the protection of ecosystems. The other half of revenues will be used for • Environmental taxation in Côte d'Ivoire: Inventory and identification of carbon
financing the Program for the Substitution of Illicit Use Crops (Programa Nacional pricing opportunities.
Integral de Sustitución de Cultivos de Uso Ilícito).
These studies are expected to be presented and disseminated to local stakeholders
The ETS design is currently being analyzed by the government. The Climate Action in 2022 and the next steps will be informed by feedback provided through this
Law (Ley de Acción Climática), which came into force in December 2021, consolidates consultation process.
the commitments presented in Colombia’s NDC and sets a goal to fully implement the
ETS by 2030. This law has also set an obligation for legal persons to report direct and DENMARK
indirect GHG emissions, following criteria to be set by the Ministry of Environment In December 2020, related to the Climate Act, the Danish government announced a
and Sustainable Development (Minambiente). Green Tax Reform to achieve Denmark’s emissions reduction goal. The reform did not
include any provisions on the Danish carbon tax.
CÔTE D'IVOIRE
Five preliminary studies have been developed on the following topics: EUROPEAN UNION
• Benefits beyond climate: Economic co-benefits of carbon taxation in Côte d’Ivoire, The European Climate Law entered into force in July 2021, setting new binding EU-
• Proposals for a fiscal bonus-malus mechanism for the promotion of sustainable wide climate targets for 2030 (55% cut in GHG emissions compared to 1990 levels)
cocoa in Côte d’Ivoire, and 2050 (net zero emissions), and initiating a process to develop a 2040 target.

FOREWORD SUMMARY CHAPTER 1 CHAPTER 2 CHAPTER 3 ANNEXES 58

As part of the broader package of legislation under the European Green Deal that was from all energy taxes including CO2 component of the energy tax rate). Taxation on
announced in 2020, the European Commission put forward a policy reform package heating fuels, such as coal, natural gas, peat, and fuel oil, was increased by EUR 2.7/
to deliver on the European Green Deal and align decarbonization efforts with the megawatt-hour from the beginning of 2021 (the increase was made to the energy
updated 2030 climate target. content tax).

The package places the EU ETS at the heart of the EU’s decarbonization agenda with GERMANY
major changes that include Germany successfully launched its national fuel ETS on January 1, 2021 at a fixed
• an increased linear reduction factor from 2.2% to 4.2%, and a one-off reduction to price of price of EUR 25 (USD 28)/tCO2e and the sale of National Emissions Trading
the cap to be applied retroactively when the legislative process for the revision is Scheme (nEHS) allowances started in October 2021. All fuel emissions not regulated
concluded; under the EU ETS (mainly heating and road transport) are covered. These emissions
• the inclusion of the maritime sector into the market’s scope from 2023, and a stem from a variety of sources, such as heating, oil, natural gas, petrol, and diesel.
separate fuel ETS for buildings and road transport; Some fuels (e.g., coal and waste) will be phased in subsequently in 2023.
• the introduction of uniform product benchmarks to support breakthrough
technologies, more stringent benchmark values, and a provision that would render The national ETS will be phased in gradually with a fixed price on emission
free allocation conditional on low-carbon investment by the receiving entity; allowances from 2021 to 2025. In the next years, the fixed price will continuously rise
• the gradual phase-out of free allocation to aviation sector; to EUR 55 (USD 61)/tCO2e in 2025. In 2026, allowances will be auctioned in a price
• the introduction of a CBAM that prices imported goods based on their embedded corridor ranging between EUR 55 (USD 61)/tCO2e and EUR 65 (USD 72)/tCO2e. From
emissions from 2026; 2027 onwards, allowance prices will be set by the market unless the government
• updated parameters of the MSR including a new buffer threshold and an extension proposes a new price corridor in 2025. The cap is set based on Germany’s mitigation
of the current intake rate of 24% beyond 2023; and targets for sectors not covered by the EU ETS as outlined in the EU Effort Sharing
• new regulations around revenue use to address distributional effects and spur Regulation. Revenue will be used for a variety of measures, in particular to support
innovation, including the creation of the Social Climate Fund. decarbonization, to lower electricity rates for consumers, and to deduct transport
costs from income taxes for commuters.
The updates, split into several legislative proposals, follow an extensive process that In July 2021, a Carbon Leakage Regulation was adopted that aims to ensure cross-
included multiple consultation rounds. The Council and the European Parliament border competitiveness of firms regulated under the nEHS.
need to agree on their final form before they can take effect.
The next steps in the implementation of the nEHS include amending the Fuel
FINLAND Emissions Trading Regulation by determining the annual cap of the nEHS and
From January 1, 2019, Finland changed the methodology to calculate the CO2 introducing hardship provisions. A first draft was published in October 2021.
emissions for heating fuels and fuels for work machines covered under its carbon
tax, whereby full life cycle emissions of the fuels are now included instead of only INDONESIA
combustion emissions. To limit the additional tax burden due to this change, the In October 2021, the Indonesian House of Representatives passed a law on tax
carbon tax rate of these fuels decreased from EUR 62 (USD 69)/tCO2e to EUR 53 (USD regulation harmonization. While the law includes a suite of broader tax reforms, it
59)/tC2e. In addition, the partial carbon tax exemption for combined heat and power also includes the introduction of a carbon tax. The introduction of a carbon tax is part
plants was turned into a partial energy tax exemption, resulting in a small increase of of Indonesia’s broader Carbon Pricing Roadmap, set out in a presidential umbrella
the tax burden on coal to support the transition away from coal use. regulation also signed in October 2021, which includes a longer-term plan for
introducing an ETS and a carbon crediting mechanism. The carbon tax was initially
The electricity tax class II (industry, agriculture, mining, data centers) was lowered set to commence in April 2022 but was pushed back to commencing in July in light
to the EU minimum in 2021 and at the same time the tax refund for energy-intensive of rising energy commodity prices. The Ministry of Energy and Mineral Resources
enterprises will be abolished over the four-year transition period 2021–2025 (refund is looking to determine emission caps for coal-fired power stations in 2022. The

FOREWORD SUMMARY CHAPTER 1 CHAPTER 2 CHAPTER 3 ANNEXES 59

government is further assessing the potential to apply a carbon price to other sectors Environment resumed discussions at the Subcommittee on Utilization of Carbon
(according to sector readiness), with the aim of having a broad-coverage carbon Pricing on February 1, 2021 while the Ministry of Economy, Trade and Industry
pricing policy mix implemented by 2025. started a carbon pricing study group in mid-February 2021. One option being
progressed is a detailed design for the implementation of the Green Transformation
A presidential regulation that provides a national legal umbrella for the development League, a baseline-and-credit system for companies setting voluntary targets. This
of carbon pricing instruments, including an ETS, was signed in October 2021. As new mechanism will likely build on existing carbon trading systems such as the JCM
of March 2022, the government is working on a set of draft regulations to guide or J-Credit scheme.
the development and implementation of carbon pricing instruments in Indonesia,
including on the procedures for implementing an ETS in the power sector. The ETS Saitama
regulation, prepared by the Ministry of Energy and Mineral Resources, will outline the The Saitama ETS is in its third compliance period (FY2020–2024), which requires
broad compliance requirements and high-level design aspects. facilities to reduce emissions by 20% or 22% below baseline emissions, depending on
their category.
IRELAND
The Finance Act 2020 legislated for annual increases in carbon tax to EUR 100 (USD Tokyo
111)/tCO2 by 2030. A series of annual increases of EUR 7.50 (USD 8.3) apply to the In June 2021, the Tokyo Metropolitan Government released emissions data for FY2019.
amount charged per metric ton of CO2 emitted coming into effect from 2021 and for Data indicates that covered facility emissions were reduced by 27% during the five
each year thereafter up to and including 2029 with a final increase of EUR 6.5 (USD years of the second compliance period (FY2015–FY2019) compared to base-year
7.2) in 2030. emissions. This represented an overachievement on the target set for the period.

Carbon tax for petrol and diesel increased from EUR 26 (USD 29)/tCO2 to EUR 33.5 MALAYSIA
(USD 37)/tCO2 on October 14, 2020. The increase extended to all other fuels on which The Malaysian Ministry of Environment and Water is working with other relevant
the tax is applied in May 2021. The second increase of EUR 7.50 (USD 8.3)/tCO2, from ministries, including the Ministry of Finance, to develop an ETS policy and
EUR 33.50 (USD 37)/tCO2 to EUR 41.00 (USD 45)/tCO2 emitted applies from October 13, implementation framework. At the same time the Government of Malaysia continues
2021 for auto fuels and May 1, 2022 for all other fuels. to consider the potential for implementing other carbon pricing policies, including a
carbon tax and voluntary carbon markets.
ISRAEL
In August 2021, the Israeli Ministers of Environmental Protection, Finance, Energy, MEXICO
and Economy announced the intention to implement a carbon tax in 2023. The carbon In March 2022, the Secretaría de Hacienda y Crédito Público announced exemptions to
tax is anticipated to be applied through the existing fuel excise system and will cover the carbon tax applied to gasoline and diesel.
coal, LPG, fuel oil, petcoke, and natural gas from 2023. Other initiatives are planned
to address GHG emissions from waste and landfills and other sources. MONTENEGRO
In October 2021, along with other Western Balkan states, Montenegro agreed with the
Diesel and gasoline used for road transportation will not be taxed further and the EU on a roadmap for implementation reflected in the Green Agenda Action Plan. The
carbon tax will replace a share of the existing excise tax. Also, the implementation of EU will support such efforts with EUR 9 billion (USD 10.6 billion) in grants and EUR
the tax rates is not intended to cause the price of electricity to increase by more than 20 billion (USD 26.3 billion) in investments. Under the agreement, Montenegro will
5% until 2028 under the proposed legislation. need to fully align its national legislation with the EU’s by 2024. The start date of the
ETS has not yet been announced.
JAPAN
Japan’s prime minister has asked two different ministries to develop and propose NETHERLANDS
a carbon pricing mechanism that can contribute to growth. The Ministry of the On January 10, 2022 the new Dutch government was sworn in and its climate action

FOREWORD SUMMARY CHAPTER 1 CHAPTER 2 CHAPTER 3 ANNEXES 60

plans are set out in the 2021–2025 coalition agreement. Referring to the carbon tax, PORTUGAL
the agreement states that the government intends to increase the rate of the marginal As part of the package of measures to respond to the extraordinary increase in fuel
levy. Also, to maintain price certainty, a gradually increasing price floor will be prices, the Portuguese government decided to suspend the increase of the CO2 tax
introduced for the EU ETS price, preferably in agreement with neighboring countries. until March 31, 2022. The rate remained at EUR 23.921 (USD 26.4)/tCO2e until March
31, 2022 and a potential increase to the tax is still under consideration. Portugal
NEW ZEALAND started to implement a carbon tax on air and sea travel (Taxa de carbono sobre
A number of reforms to the ETS were introduced during 2021 in line with the approval viagens aéreas) on July 1, 2021. A tax of EUR 2 (USD 2.2) will be levied on all air and
of the Climate Change Response (Emissions Trading Reform) Amendment Act 2020. sea travel passengers departing from Portugal. Noncommercial flights are exempt
The reforms include a new cap on unit supply and the introduction of an auctioning from this tax.
mechanism (coinciding with the withdrawal of the fixed-price option, which
previously acted as a price ceiling). Auctioning began in March 2021, with 19 million REPUBLIC OF KOREA
allowances made available for auctioning (plus an additional 7 million allowances Phase 3 of the ETS commenced in 2021 with a stricter cap and an increased proportion
that were released from the cost containment reserve). of allowances distributed via auction. Phase 3 has also seen third-party participation,
with the government approving 20 financial institutions to enter the market for the
NORWAY first time.
In its Climate Plan for 2021-2030, the former government announced its plans to
increase the carbon tax rate on non-ETS emissions to NOK 2000 (USD 229)/tCO2e (in SINGAPORE
2020 terms) by 2030. The current government has stated that it intends to follow up The government announced the outcomes of the carbon tax review as part of the
on this measure. To keep up with the price increase trajectory, Norway increased the National Budget Statement delivered on February 18, 2022. The carbon tax rate will be
rates of carbon tax for approximately 30% for most fossil fuels in 2022. The general increased to SGD 25/tCO2e (USD 18/tCO2e) in 2024 and 2025, and SGD 45/tCO2e (USD
tax rate on non-ETS emissions increased from NOK 591 (USD 68)/tCO2e in 2021 to 33/tCO2e) in 2026 and 2027, with a view to reaching SGD 50-80/tCO2e (USD 37-59/
NOK 766 (USD 88)/tCO2e in 2022. tCO2e) by 2030. The revised tax levels and trajectory provide an appropriate price
signal for businesses and individuals to reduce their carbon footprint and enable the
Norway also introduced a tax on waste incineration at the rate of NOK 192 (USD 22)/ transition to a low-carbon future. The early announcement provides businesses with
tCO2e and natural gas and LPG used in greenhouses which was previously exempt greater certainty in planning while enhancing the business case to invest in low-
from the carbon tax, at the rate of NOK 77 (USD 9)/tCO2e. carbon technologies and carbon markets. The government has put in place schemes
to financially support businesses’ decarbonization efforts and will continue to review
The government removed certain exemptions for natural gas and LPG for certain the support measures for businesses to implement needle-moving decarbonization
industrial processes as of January 1, 2020 to strengthen its climate policy and improve solutions to increase competitiveness.
the cost-effectiveness of its carbon tax. However, in relation to the COVID-19
disruption in the first half of 2020, the parliament has decided to reinstate the Companies will also be able to surrender high-quality international carbon credits to
exemption for natural gas and liquefied petroleum as of April 1, 2020. The tax was offset up to 5% of their taxable emissions from 2024. This will cushion the impact
reintroduced by the parliament in 2021, but not put into effect due to concerns that for companies that are able to source for credible carbon credits in a cost-effective
the exemption for undertakings subject to the ETS would be considered to constitute manner. This will also help to create local demand for high-quality carbon credits
state aid under the European Economic Area Agreement. The tax will be put into and catalyze the development of well-functioning and regulated carbon markets.
effect as soon as the measure has been notified and accepted by the European Free A transition framework will also be introduced to give existing EITE companies more
Trade Agreement Surveillance Authority. As of February 2022, the tax has not yet time to adjust to a low-carbon economy. To help maintain business competitiveness
been put into effect. in the near term and mitigate the risk of carbon leakage, existing facilities in EITE
sectors will receive transitory allowances for part of their emissions, based on
efficiency standards and decarbonization targets. The government recognizes that

FOREWORD SUMMARY CHAPTER 1 CHAPTER 2 CHAPTER 3 ANNEXES 61

existing investments were made amidst a different operating context and there are SWEDEN
near-term challenges in transitioning to low-carbon operations (e.g., decarbonization On August 1, 2019, Sweden eliminated or reduced exemptions to its carbon tax as
technologies need time to mature). New investments will not qualify for the part of a set of measures to reach its climate target of net zero emissions by 2045.
transition framework. The partial exemption for diesel used in mining, which stood at 40% of the carbon
The government is currently consulting affected companies on the framework. The tax rate, was abolished. In addition, the exemption for fuels used to generate heat
details will be finalized by 2023, ahead of the increase of carbon tax level in 2024. in cogeneration facilities that fall under the EU ETS is reduced from 89% to 9% if
this heat is not used in industrial manufacturing processes. This is in line with other
SOUTH AFRICA heat generation plants in the EU ETS. Heat generated by facilities outside of the EU
As part of the 2022 budget, the government announced a range of updates to the ETS remain taxed at the full carbon tax rate, which sits at SEK 1222 (USD 130)/tCO2 in
carbon tax. These changes include an increase in the carbon tax rate from ZAR 134 2022. The annual adjustment by gross domestic product has been paused for 2021 and
(USD 9.2)/tCO2e to ZAR 144 (USD 9.8)/tCO2e for the 2022 tax period. The budget 2022 for gasoline and diesel.
also proposes a range of potential reforms to the transitional phase of the carbon
tax. Under the proposal, the transitional phase would be extended by three years SWITZERLAND
to December 31, 2025 and would include other changes to the available support Switzerland’s CO2 levy automatically increased to CHF 120 (USD 130)/tCO2e starting
measures, including adjusting the threshold for the maximum trade exposure on January 1, 2022, since emissions of fossil heating and process fuels in 2020 were
allowance from 30% to 50% from January 1, 2023; extending the electricity price beyond 76% of the sector’s emissions in 1990.
neutrality commitment until December 31, 2025; and adjusting the carbon tax rate
applied to GHG emissions exceeding the (yet to be legislated) carbon budgets to In September 2020, the Swiss Parliament adopted the legal framework for Swiss
address concerns regarding double penalties to companies covered by both the carbon climate policy until 2030 through the fully revised CO2 Act (Federal Act on the
tax and carbon budgets. Reduction of Greenhouse Gas Emissions), which set out a 50% emission reduction
target and reinforced measures for the transport, buildings, and industry sectors. The
At the same time the government’s proposal includes measures to help promote the fully revised CO2 Act was planned to enter into force in 2022. However, voters rejected
transition to a climate-resilient economy and to improve the long-term carbon price the revised CO2 Act in a referendum held on June 13, 2021.
signal. This includes a proposal to revise how future carbon tax rates are set. The
proposal would increase the carbon tax rate by at least USD 1 each year to reach USD In response to the referendum, in December 2021 the Swiss Parliament adopted
20/tCO2e by 2026 and then for the carbon price to increase more rapidly thereafter to a prolongation of the CO2 Act through a partial revision of the CO2 Act until 2024.
at least USD 30 by 2030 and up to USD 120 beyond 2050. The government also intends It guarantees a continuation of existing measures, including the CO2 levy at its
to gradually reduce the basic tax-free allowances in the period from 2026 to 2030 current rate of of CHF 120 (USD 130)/tCO2e. This partial revision could be subject to a
and to increase the carbon offset allowance by 5% from January 1, 2026 to encourage referendum call, if handed in by April 2022.
investments in carbon offset projects. These and other proposals will form part of a
review for the second phase, to inform future budget announcements. TAIWAN, CHINA
Since the beginning of 2021, the Taiwan Environmental Protection Administration
SPAIN (TEPA) has been in the process of revising the act. In July 2021, the TEPA established
A consultation process to modify some elements of the tax on fluorinated gases a new climate change office under it to accelerate policy development. In late October
started in 2021. 2021, the draft of revision of the Greenhouse Gas Control Act was published for public
consultation and renamed as Climate Change Response Act. The draft legislation
Catalonia proposes a new carbon fee for domestic emissions, which would commence ahead
The vice presidency of economy and finance of Catalonia started a public consultation of an ETS mechanism. The proposed carbon fee would potentially cover direct and/
process on a possible carbon tax on March 1, 2022. The public consultation aims or indirect emissions with the potential to use domestic offsets to cover carbon fee
to guarantee the applicability of the tax on greenhouse gas emissions generated by liabilities. Carbon fee revenues would be directed toward supporting domestic climate
economic activities and to achieve the energy transition objectives established by Law mitigation and a low-carbon economy.
16/2017 on climate change.

FOREWORD SUMMARY CHAPTER 1 CHAPTER 2 CHAPTER 3 ANNEXES 62

After public consultation, the Climate Change Response Act is expected to be UNITED STATES
submitted to the Legislative Yuan in the first half of 2022 for further review and Most carbon pricing developments in the United States are taking place on the
finalization. Further details of the carbon fee and ETS will be developed via sub-laws. subnational level, as summarized below.
Regulatory discussions are pending on the specific design of the carbon fee and ETS
system, the timeline of implementation, and how the carbon fee could transition to California
(or coexist with) an ETS. Major changes to the program took effect in January 2021, including the addition of a
price ceiling, the inclusion of two allowance price containment reserve tiers below the
THAILAND price ceiling, reductions in the use of offset credits (especially for credits generated
Following COP26, the government is developing rules and guidelines for carbon from projects that do not provide direct environmental benefits in the state), and a
credit trading, expected to be released in 2022. As part of this work, the Thailand steeper allowance cap decline to 2030.
Greenhouse Gas Management Organization is collaborating with the Federation of
Thai Industries to develop a carbon credit trading platform. The California Air Resources Board launched the Climate Change Scoping Plan update
process during 2021, which seeks to develop policy strategies to achieve 2030 and
UKRAINE 2045 targets. The scoping plan will be published in 2022.
Ukraine’s parliament approved new amendments to the tax code—the carbon tax rate
increased from UAH 10 (USD 0.3)/tCO2e to UAH 30 (USD 1)/tCO2e starting from January By May 2021, prices reached record highs for California Carbon Allowances, as
1, 2022, and up to 70% of budget revenues from carbon taxes will be directed to observed by the auction settlement price and in reported prices for commodity
reduce CO2 emissions and to encourage decarbonization in certain sectors. By the end exchange futures contract for near-month delivery and brokered transactions.
of June 2022 the Cabinet of Ministers of Ukraine plans to develop and submit a draft
law to the parliament on further use of such budget revenues. Massachusetts
The share of ETS allowances distributed through free allocation was 50% in 2020. The
UNITED KINGDOM system changed to full auctioning in 2021. In March 2021, Massachusetts passed a
The first UKA auction took place in May 2021, with all of the more than 6 million new climate law with binding emission reduction targets of 50% below 1990 levels by
allowances on offer sold at the market clearing price of GBP 43.99 (USD 58), well 2030 and 75% below 1990 levels by 2040, as well as net zero emissions by 2050.
above the auction reserve price of GBP 22.00 (USD 29). The same day marked the
start of UKA futures trading and, a week later, the government transferred the first The first program review (required by regulation) was in 2021, with a review every 10
free UKAs for the 2021 scheme year to eligible regulated entities. The introduction of years thereafter. To address potential liquidity issues, the program review considered
new allowances to the market has since continued through twice-monthly auctions. the following actions: limits on allowance banking, auctioning of future allowances,
and adjustment of auction bid limits.
An auction in early October 2021 of just under 5.19 million UKAs partially cleared,
with about 4.15 million UKAs being sold at GBP 60.00 (USD 79). As per the scheme’s Oregon
rules, the bids below this price level were deemed too far below the secondary market In December 2021, the Environmental Quality Commission adopted the rules for the
price at the time and the 1.04 million unsold UKAs were distributed across the four Climate Protection Program that started in January 2022. The Climate Protection
subsequent auctions. All other auctions in 2021 cleared fully. Program places a declining limit on GHG emissions from suppliers of liquid fuels and
propane and natural gas utilities, also dubbed local distribution companies.
To avoid instability in allowance prices, the UK ETS has a cost containment
mechanism (CCM) that allows auctioning of additional allowances. While the monthly Regional Greenhouse Gas Initiative
average UKA prices in September, October, and November 2021 were above the CCM In May 2021, the final regulation to establish an ETS in Pennsylvania covering CO2
trigger price of GBP 52.88 (USD 69.5), the UK ETS Authority decided not to intervene. emissions from the power sector and to join RGGI was released alongside updated
The CCM was triggered again in January 2022 and an announcement was made in modeling results of the effects of the ETS. It would allow for RGGI participation
mid-January that, again, no intervention would be made. starting 2022, barring litigation or action from the state legislature. Pennsylvania’s
share of emissions in the 2022 RGGI cap is approximately 45%.

FOREWORD SUMMARY CHAPTER 1 CHAPTER 2 CHAPTER 3 ANNEXES 63

An emissions containment reserve started operating in 2021. The emissions In January 2022, the government of Vietnam issued a decree, which provides a
containment reserve is an automatic adjustment mechanism that will adjust the cap comprehensive set of regulations under the revised Law on Environmental Protection
downward when carbon prices are lower than expected. and outlines a roadmap for their implementation. The decree sets forth rules for
monitoring, reporting, and verification (MRV) systems and includes provisions for
The RGGI states initiated the Third Program Review in summer 2021 to analyze developing a national ETS with a declining cap corresponding to Vietnam’s NDC and
program successes, impacts, potential additional reductions to the cap post-2030, the establishment of a national crediting mechanism.
and other design elements. The review is expected to be concluded in 2023.
Vietnam anticipates launching a pilot ETS in 2026, before launching a full ETS in
Transportation and Climate Initiative Program 2028.
In June 2021, the four participating jurisdictions released a final model rule for the
implementation of the Transportation and Climate Initiative Program (TCI-P), with
reporting of emissions and fuel shipment data under the program scheduled to start
in 2022.

In the second half of 2021, most of the participating states halted participation in
the proposed TCI-P. According to the final memorandum of understanding, the
first compliance period of TCI-P will commence January 1, 2023 or once “at least
three jurisdictions have completed the legal processes required to implement their
individual programs.”166 After the recent developments, it is unlikely that the
implementation of TCI-P in its current form will continue.

Washington
In May 2021, Governor Jay Inslee signed into law the Climate Commitment Act, which
puts in place an economy-wide cap-and-invest program that begins in January 2023.

URUGUAY
Uruguay’s carbon tax was implemented on January 1, 2022, following Presidential
Decree 441/021. The carbon tax rate for 2022 is UYU 5,645.45 (approximately USD
137.29).

VIETNAM
In November 2020, Vietnam’s revised Law on Environmental Protection was issued.
The revised law confirmed the role of carbon pricing in Vietnam’s mitigation policy
mix, provided the legal mandate for the development of a domestic emissions trading
scheme and a national crediting mechanism, and assigned ministerial responsibilities.
The revised law will also be supplemented by a Prime Ministerial roadmap for CPI
implementation, which is currently under development and is expected to be issued
in 2022. The framework legislation also empowers the Ministry of Natural Resources
and Environment to set the emissions cap and determine the method of allowance
allocation, and allows for the inclusion of domestic and international offsets.

FOREWORD SUMMARY CHAPTER 1 CHAPTER 2 CHAPTER 3 ANNEXES 64

Annex C

Crediting mechanism
updates

FOREWORD SUMMARY CHAPTER 1 CHAPTER 2 CHAPTER 3 ANNEXES 65

This appendix presents significant developments in carbon crediting mechanisms in
the year up to April 1, 2022. Where no significant changes occurred over the past year,
these mechanisms are not included. Figure 16 presents an overview of domestic and
independent crediting mechanisms included in this report.

FIGURE 16
Credits issued, registered activities, average 2021 price, and sectors covered by crediting mechanisms

Name of the mechanism Credits issued Registered Average Sectors covered

(MtCO2e) activities price (USD)
American Carbon Registry 8.8 18 11.4
Agriculture
Climate Action Reserve 4.8 44 2.1
Gold Standard 43.8 51 3.9 Carbon capture and
Verified Carbon Standard 295.1 110 4.2
storage and Carbon
capture and utilization
Plan Vivo 0.01 1 11.6
Energy efficiency
Clean Development Mechanism 59.5 0 1.1
Alberta Emission Offset System 0.4 33 32 Forestry
Australia Emission Reduction Fund 17.1 142 11.9 - 12.7 Fuel switch
Beijing Forestry Offset Mechanism - 0 8.9 Fugitive emissions
Beijing Parking Offset Crediting Mechanism 0.002 0 7.6
Industrial gases
British Columbia Offset Program - 0 N/A
Manufacturing
California Compliance Offset Program 17.4 38 14.9
China GHG Voluntary Emission Reduction Program - 0 0.6 - 8.2 Other land use

Chongqing Crediting Mechanism - 7 2.7 - 4.6 Renewable energy

Fujian Forestry Offset Crediting Mechanism 0.3 3 1.6 - 3.1 Transport
Guangdong Pu Hui Offset Crediting Mechanism 0.3 20 3.5 - 6.6
Waste
J-Credit Scheme 0.9 44 13 - 20.8
Blue carbon
Kazakhstan Crediting Mechanism 0.1 3 N/A
Québec Offset Crediting Mechanism 0.2 3 15.5
Republic of Korea Offset Credit Mechanism 5.2 28 10.7 - 29
RGGI CO2 Offset Mechanism - 0 N/A Crediting mechanisms:
Saitama Forest Absorption Certification System 0 15 N/A
Independent
Saitama Target Setting Emissions Trading System 6.4 592 3.8
International
Spain FES-CO2 program 0.9 0 8.8
Domestic
Switzerland CO2 Attestations Crediting Mechanism 1.4 13 128.2
Taiwan GHG Offset Management Program 12.4 20 N/A
Thailand Voluntary Emission Reduction Program 3 32 N/A
Tokyo Cap-and-Trade Program 0.01 5 39 - 52.4
Joint Crediting Mechanism 0.001 6 N/A

FOREWORD SUMMARY CHAPTER 1 CHAPTER 2 CHAPTER 3 ANNEXES 66

C.1 DOMESTIC CREDITING MECHANISMS ecological products was released at the first China (Chongqing) Guangyang Bay Green
and Low-carbon Development Summit.
This section outlines significant developments in regional, national, and subnational
crediting mechanisms. Where no significant changes occurred over the past year, GUANGDONG PU HUI OFFSET CREDITING MECHANISM
these mechanisms/jurisdictions are not included. For more detailed information on all New Pu Hui Certified Emissions Reductions trading rules on the quantity and price
carbon taxes and ETSs, see Annex B and the Carbon Pricing Dashboard, an interactive of certain transaction types were established in June 2020, following a suspension by
online platform that provides up-to-date information on existing and emerging the provincial government in August 2018. In early 2022, the Guangdong government
carbon pricing instruments around the world. consulted on options to deepen and improve the crediting mechanism.

ALBERTA EMISSION OFFSET SYSTEM INDO-PACIFIC CARBON OFFSETS SCHEME

Quantification protocols have been updated over the past year to cover emissions The Indo-Pacific Carbon Offsets Scheme is designed to help partner countries
reductions from capturing vented methane and for emissions reductions associated generate and trade high-integrity carbon offsets under the Paris Agreement. In
with carbon capture and storage. November 2021, the Australian government announced four draft design principles:
transparent and inclusive governance; aligned with the Paris Agreement and SDGs;
AUSTRALIA EMISSIONS REDUCTION FUND responsibility and cooperation amongst parties; and high-integrity units.
The Australian government is seeking to increase the number of methods available
to potential project proponents. For example, a new method for carbon capture JOINT CREDITING MECHANISM
and storage was made available in October 2021, and a Blue Carbon Method became After COP26, Japan’s Minister of the Environment announced that Japan will expand
available during January 2022. the JCM partner countries and strengthen project development and implementation
in collaboration with international organizations, and scale up the JCM by mobilizing
BEIJING FORESTRY OFFSET MECHANISM further private finance.
While there were no additional credits issued during 2021, the government’s 2022
Action Plan on Climate Change reaffirms the commitment to increase the carbon sink QUÉBEC OFFSET CREDIT COMPONENT OF THE CAP-AND-TRADE
capacity of forestry and green spaces. The government of Québec established a crediting program that issues Québec offset
credits intended for organizations wanting to meet compliance obligations under
CHILE CREDITING MECHANISM the ETS. In 2021 draft regulations for afforestation and reforestation projects were
The government of Chile published a draft climate change law in January 2021 released, and significant technical work toward crediting for anaerobic manure
that would set up a baseline-and-credit scheme to drive emissions reductions digestion.
among individual companies or groups of companies as a policy to achieve sectorial
compliance with Chile’s long-term emission reduction goals. The regulation for the REPUBLIC OF KOREA OFFSET CREDIT MECHANISM
crediting mechanism has been under public consultation and is subject to change. The Republic of Korea offset credit mechanism was implemented to provide offset
credits for use within Korea’s ETS. Korean Offset Credits (KOCs) must be converted
CHINA GHG VOLUNTARY EMISSION REDUCTION PROGRAM into Korean Credit Units (KCUs) by the Korean government before they can be used
China’s GHG Voluntary Emission Reduction Program was implemented in 2012 but for compliance obligations. Limitations have been introduced on the issuance and
was suspended in 2017, meaning that new projects have not been added since that conversion of offset credits in Phase 3, which commenced in 2021. For example, KOCs
time. The government is currently considering a re-relaunch of the program. must be converted into KCUs within two years after the end day of the KOCs’ issuance
year.
CHONGQING CARBON OFFSET MECHANISM
The Chongqing carbon offset mechanism was launched in September 2021. A Phase 3 has also seen international KOCs being traded in the market for the first time.
Chongqing Certified Emissions Reductions platform for realizing the value of

FOREWORD SUMMARY CHAPTER 1 CHAPTER 2 CHAPTER 3 ANNEXES 67

SASKATCHEWAN GHG OFFSET PROGRAM including digital methodologies and workflows, internet of things for data gathering,
Due to changes in federal backstop requirements, Saskatchewan’s proposed provincial distributed ledger technology, and smart contracts that can enhance data quality,
Offset Program is being redesigned. A modified Offset Program will be launched in reduce time and costs, and provide access to smaller or less experienced project
conjunction with the province’s updated OBPS in 2023. supporters. The initiative is going to be supported by Google.org Charitable, which
provided a grant of USD 1 million to the Gold Standard.168
SOUTH AFRICA CARBON TAX OFFSET SYSTEM
The South African Carbon Tax Offset system currently operates through a VERIFIED CARBON STANDARD
“gatekeeping” model, whereby projects in South Africa developed under the CDM, Verra is in the process of updating its Verified Carbon Standard Avoiding Unplanned
the VCS, and the Gold Standard are potentially eligible. The South African carbon Deforestation and Degradation methodologies to show the latest best practices
offsetting regulations were amended in July 2021. on carbon credits for REDD+ activities. The updated methodologies will include
standardized processes for activity data generation, baseline development,
The government is also considering developing its own crediting mechanism. In monitoring, and leakage. These processes aim to guarantee that individual REDD+
January 2022, the South African Department of Mineral Resources and Energy projects continue to direct carbon finance to endangered forests while the evolution
released for public comment a draft framework to develop domestic carbon offset of jurisdictional REDD programs is still in progress.169
standards. The draft framework sets out the requirements, criteria for selection,
evaluation, and approval of domestic standards. Consultation on the new methodologies will close in May 2022. These consultations
will inform the revision of the methodologies and will be followed by an assessment
SPANISH CARBON FUND FOR A SUSTAINABLE ECONOMY of a validation/verification body. Verra intends to publish the revised methodologies
In late 2020, the scope of the Spanish Carbon Fund for a Sustainable Economy was by the end of 2022.
broadened in line with the national policy on climate change and the incoming
additional efforts needed to achieve carbon neutrality by 2050. The government still CLIMATE ACTION RESERVE
intends to acquire credits coming from activities carried out through the UNFCCC and The Climate Action Reserve launched a process to develop a Biochar Protocol for
the Paris Agreement framework. Those changes will be fully operational from 2022 quantifying, monitoring, reporting, and verifying the climate benefits from the
onwards. production of biochar.170 Biochar production sequesters CO2 and relates to activities
such as producing feedstocks from agricultural residues and other waste biomass
SRI LANKA CARBON CREDITING SCHEME sources such as timber harvests. The protocol will define eligible biochar production
The Sri Lanka Carbon Crediting Scheme (SLCCS) was initiated as the Sri Lanka Carbon operations, as well as end uses for which the permanence of sequestered carbon
Standard in 2013, but was restructured as the SLCCS in 2016. Updated program can be reasonably estimated. The protocol is developed through a multistakeholder
guidelines were released in 2021, which include revised requirements for project workgroup with representatives from industry, project developers, nongovernmental
validation, verification, and registration. organizations, verification bodies, and others, and is expected to be approved and
launched in 2022.171

C.2 INDEPENDENT CREDITING MECHANISMS AMERICAN CARBON REGISTRY

The American Carbon Registry introduced a new functionality in its registry to
GOLD STANDARD label credits as “carbon removals,” distinguishing them from emission reduction
The Gold Standard is seeking to launch an initiative to develop digitization credits, with the aim of increasing transparency regarding credit attributes for credit
technologies for setting up the MRV processes of carbon markets. The aim is to buyers.172 Projects that generate both carbon removals and emission reductions, such
develop a tool that can also monitor other benefits beyond emission reductions, like as improved forest management projects, can distinguish between the two credit
the progress achieved toward the SDGs. 167
types upon issuance. Here, removal credits represent the carbon sequestered in new
trees being grown in the project area, whereas emission reductions represent the
This development takes place in a context where much of the project development carbon reduced through improved harvesting techniques.173
and MRV is still conducted manually, and it aims to blend a spectrum of technologies,

FOREWORD SUMMARY CHAPTER 1 CHAPTER 2 CHAPTER 3 ANNEXES 68

C.3 INTERNATIONAL MECHANISMS

CLEAN DEVELOPMENT MECHANISM

With the end of the second phase of the Kyoto Protocol, the CDM begins its transition
to the mechanisms created under the Paris Agreement. Activities registered under
the CDM are eligible to transition to the Article 6.4 mechanism under the following
circumstances:174
• The request to transition the CDM activity to Article 6.4 must be made by December
31, 2023. Host country approval for such transitions must be made by December 31,
2025.
• Once approved, the activity may continue to follow its current methodology until
the end of its current crediting period or December 31, 2025 (whichever is earlier).
After this date, it will have to follow the methodologies approved under Article 6.4.
• The certified emission reductions issued under the CDM may be used to achieve
first NDCs, provided that the activity was registered on or after January 1, 2013. The
host country will not be required to apply a corresponding adjustment.

Although the Article 6.4 mechanism is built on the previous experience of the CDM, it
will have its own set of rules, modalities, and procedures.

CORSIA
The ICAO CORSIA pilot phase started on 1 January 2021. However, aviation emissions
remain below baseline levels following the decision to use 2019 emissions as the
baseline, and are unlikely to exceed these levels until at least 2023, which marks
the end of CORSIA's pilot phase.175 As of March 2021, 108 states have signed up for
CORSIA’s pilot phase. At the end of 2021, eligible emission units were approved from
eight programs: American Carbon Registry, Architecture for REDD+ Transactions,
China GHG Voluntary Emission Reduction Program, Clean Development Mechanism,
Climate Action Reserve, Global Carbon Council, Gold Standard, and Verified Carbon
Standard. During 2022, the Technical Advisory Body will reassess interested eligible
CORSIA Eligible Emissions Unit Programs to inform the ICAO Council on which
emissions units should be eligible for use under CORSIA in the first phase starting in
2023.176

FOREWORD SUMMARY CHAPTER 1 CHAPTER 2 CHAPTER 3 ANNEXES 69

Endnotes
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 January 2021. 132 G. Terzo, “Mark Cuban Thrusts Carbon Economy Crypto Project Into Spotlight,”
112 S. Favasuli, “Debate on Avoidance and REDD+ Carbon Projects to Dominate Next Yahoo!Finance, November 16, 2021.
UN Climate Conference,” S&P Global, January 12, 2022. 133 S. Reklev, “Crypto Carbon Demand Brings Back Shunned HFC-23 Credits,” Carbon
113 S. Reklev, “Papua New Guinea to Put Moratorium on REDD+ Projects for Pulse, December 13, 2021.
Voluntary Market,” Carbon Pulse, March 2, 2022. 134 Climate Warehouse, “Exploring the Potential of Emerging Technologies for
114 J. Liu and S. Reklev, “Chinese Province Slams Brakes on Forestry Offset Projects Connecting Climate Markets,” accessed March 29, 2022.
for the International Voluntary Market,” Carbon Pulse, March 2, 2022. 135 S. Reklev, “Blockchain Door Closing for Older Carbon Credits,” Carbon Pulse,
115 Ecosystem Marketplace, ‘Markets in Motion’. March 3, 2022.
116 Ecosystem Marketplace, “Voluntary Carbon Markets Top USD1 Billion in 2021 136 S. Reklev, “Tech Firm Raids BCT Pool Ahead of Nature-based Carbon Token
with Newly Reported Trades, a Special Ecosystem Marketplace COP26 Bulletin,” Launch,” January 31, 2022.
November 10, 2021. 137 S. Leugers, “COMMENT—Blockchain for Better: Untangling Tokenisation and
117 Ecosystem Marketplace, ‘Markets in Motion’. Carbon Markets,” Carbon Pulse, March 8, 2022,
118 Ecosystem Marketplace, ‘Markets in Motion’. 138 Leugers, “COMMENT.”
119 Verra, “Sustainable Development Verified Impact Standard.” 139 See e.g., Gold Standard, “Terms of Use,” 2019,
120 The Gold Standard, “Rule Update: The SDG Impact Tool,” 2021. 140 Grady et al., “COMMENT.”
121 M. Filmanovic, “The Carbon Project Development Curve,” Abatable, March 17, 141 UNFCCC, Nationally determined contributions under the Paris Agreement: Synthesis
2022. report by the secretariat. Conference of the Parties serving as the meeting of the Parties to
122 S. Choudhury, “A New Global Carbon Exchange Will Be Launched in Singapore the Paris Agreement. Third session Glasgow, 31 October to 12 November 2021 (Bonn,
This Year,” CNBC, May 21, 2021. Germany: UNFCCC, 2021).
123 NatWest Group, “Banks Join Forces to Create Voluntary Carbon Marketplace,” July 142 IETA, The Anatomy of the Carbon Market. Maximising Climate Ambitions. Article 6,
7, 2021. 2021.
124 Business Wire, “2021 Xpansiv Carbon Volume Rises 288% Driven by Surge of 143 R. Macquarie, “Searching for Trust in the Voluntary Carbon Markets,” LSE
Corporate Net-Zero and ESG Demand,” January 13, 2022. Business Review, February 16, 2022.
125 S&P Global, “INTERVIEW: Speculative Capital Offers Growth Opportunity for 144 F. Schwartzkopff, “Crazy Carbon Offsets Market Prompts Calls for Regulation,”
Carbon Market—AirCarbon,” September 14, 2021. Bloomberg, January 6, 2022.
126 Ecosystem Marketplace, ‘Markets in Motion’. 145 Azil et al., Putting Carbon Markets to Work.
127 Ecosystem Marketplace, ‘Markets in Motion’. 146 New Climate Institute, Corporate Climate Responsibility Monitor.
128 M. Filmanovic, “The State of the Carbon Developer Ecosystem 2021,” Abatable 147 D. Ingemar Hedin, “Net Zero and Carbon Neutral Claims Under Scrutiny,”
December 22, 2021. Euromonitor International, January 21, 2022.
129 H. Holger, “Cryptocurrency Traders Move Into Carbon Markets,” The Wall Street 148 D. Cullenward and D. Victor, “Chapter 6: Offsets,” in Making Climate Policy Work
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130 See e.g., World Bank, Blockchain and Emerging Digital Technologies for Enhancing 149 C. Streck et al., “We Must Protect Intact Forests, but CORSIA Got It Wrong,”
Post-2020 Climate Markets, March 2018; World Bank, Summary Report: Simulation on Carbon Pulse, April 14, 2022.
Connecting Climate Market Systems, 2019; UNEP, “Designing a Blockchain Model for 150 Federal Office for the Environment of Switzerland, Agreements Article 6.
the Paris Agreement’s Carbon Market Mechanism,” 2020; Air Carbon Exchange, 151 Swedish Energy Agency, “COP26: Ghana and Sweden Signs Agreement for
“UNFCCC Partners with the AirCarbon Exchange to Promote Carbon Offsetting,” Cooperation under the Paris Agreement,” November 10, 2021.
January 12, 2021. 152 Gold Standard, “Gold Standard and Swedish Energy Agency Partner to Ensure
131 M. Grady, L. DeMarco, R. Saines, E.A. Serra, and J. Shopley, “COMMENT: Integrity International Cooperation under the Paris Agreement,” August 25, 2021.
IETA Council Task Group on Digital Climate Markets—Key Findings and 153 VCMI, Feedback on VCMI Consultation Report, 2021; VCMI, Roadmap: Ensuring High-
Recommendations,” Carbon Pulse, March 28, 2022. Integrity Voluntary Carbon Markets, 2021.

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154 The World Bank, “Mitigation Action Assessment Protocol.”
155 See e.g., A. Bjørn, S. Lloyd, and D. Matthews, “From the Paris Agreement to
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‘Science-Based’ Emission Targets,” Environmental Research Letters 16, no. 5 (2021):
054019.
156 Science-Based Targets Initiative, “Companies Taking Action,” 2021.
157 SBTi, “Business Ambition for 1.5°C.”
158 J. Hall and J. Bednar, “Carbon Removal Will Cost as Much Annually as the NHS
Budget—but Oxford Research Shows Polluters could Pay,” University of Oxford
News, October 6, 2021.
159 European Commission, EDGAR—Emissions Database for Global Atmospheric Research.
Global Greenhouse Gas Emissions. EDGAR v6.0.
160 Environment and Climate Change Canada, “National Inventory Report 1990–
2020: Greenhouse Gas Sources and Sinks in Canada,” Canada’s Submission to the
United Nations Framework Convention on Climate Change, April 14 2022.
161 Massachusetts Department of Environmental Protection on behalf of the
Commonwealth of Massachusetts, “Market Monitor Report on the Electricity
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162 Intercontinental Exchange, Inc., “Report Center.”
163 RGGI, Inc., “RGGI CO2 Allowance Tracking System. Transaction Price Report.”
164 Intercontinental Exchange, Inc., “ICE Futures Europe. UKA Futures.”
165 International Monetary Fund, Exchange Rate Archives by Month.
166 Transportation and Climate Initiative Program, “Transportation and Climate
Initiative Program – Memorandum of Understanding”, December 2020.
167 Gold Standard, “Google.org Backs Gold Standard to Build Digital Solutions to
Help Carbon Markets Work for Climate Justice” [Media Release], February 10,
2022.
168 Gold Standard, “Google.org Backs Gold Standard.”
169 Verra, “Public Consultation: Updates to VCS Avoiding Unplanned Deforestation
and Degradation (AUDD) Methodologies,” March 31, 2022.
170 Climate Action Reserve, “Biochar Protocol,” June 23, 2021.
171 Climate Action Reserve, “Biochar Protocol.”
172 Climate Action Reserve, “Biochar Protocol.”
173 American Carbon Registry, “ACR Launches Innovative Registry Infrastructure for
Removal Credits,” April 18, 2022.
174 UNFCCC, “Matters relating to Article 6 of the Paris Agreement: Rules, modalities
and procedures for the mechanism established by Article 6, paragraph 4, of the
Paris Agreement,” 2021.
175 ICAO, CORSIA Newsletter May 2021, May 2021.
176 ICAO, CORSIA Newsletter March 2022, March 2022.

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