Emissions trading: past, present, and future
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Almost one-fifth (19%) of global carbon emissions, accounting for just over 10 Gt CO2, are covered by emissions trading systems, according to the latest analysis from the International Carbon Action Partnership (ICAP). In total, there are 38 systems currently in operation across the globe, spanning jurisdictions that collectively account for around one-third of the global population and 58% of global GDP.1
The overall share of global emissions has remained stubbornly close to the 20% mark since 2021 when China launched its carbon market. In part this has been due to declining emissions in older, more established systems, such as Europe’s and California’s, countered by the inclusion of other jurisdictions emissions under an ETS.
A step change does appear to be on the horizon, with ETS likely to play an even more important role over the course of the next decade. Some 20 countries are at various stages of considering or in the process of developing an ETS according to ICAP.
The list includes many of the largest emerging economies, including Brazil, India, Turkey, and Argentina. The introduction of Europe’s Carbon Border Adjustment Mechanism (CBAM) appears to be one of the main drivers, with governments seeking to mitigate the impact it might have on the competitiveness of their carbon intensive exports.
Despite encouraging signs that a greater share of global emissions will be covered by an ETS, the existing 38 systems and the 10 Gt CO2 of emissions they cover exhibit a wide range of carbon prices. Less than three-quarters of the emissions are subject to a carbon price of $30 per tonne of CO2 or less. In contrast, only around one-sixth of the emissions are subject to a carbon price above $70 per tonne of CO2, and that list only includes the EU ETS.
This is much lower than the carbon price widely thought to be necessary in order to limit global temperature rises to well below 2ºC; $50-100 per tonne CO2e by 2030, cited by the 2017 High-Level Commission on Carbon Prices (HLCCP) and supported by a recent survey of carbon pricing academics (see A uniform global carbon price is unworkable, and unnecessary).2
Better off together
Countries that have adopted ETS are starting to realise that they are stronger together.
Last week, the UK government and the European Union announced that they are “working towards” linking their ETS. It follows an announcement by Quebec that the government are committed to maintaining their link with the Californian carbon market. In April, Washington State relaunched the rulemaking process that could pave the way for linking their ETS with California and Quebec — hopefully sometime in 2026. Meanwhile, legislators in Oregon are thought to be seeking to establish an ETS with an eye on linking up to these same markets.