Blog: World Bank 2022 Carbon Pricing Report Launch
Global carbon pricing generating record revenues but much potential remains untapped

BERNICE VAN BRONKHORST

24 May 2022  |  The climate crisis continues to escalate amid a prolonged pandemic, increasing economic instability and geopolitical tensions. Commitments at COP26 keep hope alive that avoiding the worst effects of climate change is within our reach, but the peril remains stark.  The latest work from the Intergovernmental Panel on Climate Change makes plain that […]

24 May 2022  |  The climate crisis continues to escalate amid a prolonged pandemic, increasing economic instability and geopolitical tensions. Commitments at COP26 keep hope alive that avoiding the worst effects of climate change is within our reach, but the peril remains stark.  The latest work from the Intergovernmental Panel on Climate Change makes plain that we must arrest rising emissions now to ward off climate danger. Meeting this challenge in uncertain times calls for ambitious, just, and comprehensive action by policymakers. In this regard, carbon pricing, within an integrated policy mix, is one of the most powerful tools for guiding economies toward low emissions paths. To maximize the benefits, carbon price signals must be sustained, strengthened, and extended to a greater portion of global emissions, three-quarters of which are currently untouched by carbon pricing instruments. However, recent economic instability, volatile energy markets and rising energy prices exacerbate the political challenges for policymakers.

The World Bank’s annual report on the State and Trends of Carbon Pricing continues to provide a trusted global snapshot of carbon pricing developments year to year. The past year has seen some positive signs, particularly in relation to higher carbon prices, increased revenues, progress towards resolving cross-border issues, and the adoption of new rules for international carbon markets (under Article 6 of the Paris Agreement). However, as with previous years, progress has been far from adequate. As of April 1, 2022, only four new carbon pricing instruments had been implemented in the past year and despite record-high prices in some jurisdictions, the price in most jurisdictions remains well below the levels required to deliver on the Paris Agreement temperature goals.

In 2021, higher carbon prices, revenue from new instruments, and increased auctioning in emissions trading systems have resulted in a record USD 84 billion of global carbon pricing revenue, around 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 carbon pricing’s potential role as a broader fiscal tool to contribute towards broader policy objectives, such as to restore depleted public finances, aid pandemic recovery, or support vulnerable sectors and communities to adapt to climate impacts and achieve just transitions.

“In 2021, higher carbon prices, revenue from new instruments, and increased auctioning in emissions trading systems have resulted in a record USD 84 billion of global carbon pricing revenue, around 60% higher than in 2020.”

During this year, cross-border approaches for carbon pricing and international cooperation have made significant strides forward.  The European Union moved closer to adopting its Carbon Border Adjustment Mechanism, while Canada and other jurisdictions reaffirmed their commitments to investigate border carbon adjustments and bring down hitherto daunting technical and political barriers to such reforms. The COP26 agreements on new rules for international carbon markets help pave the way for more cross-country collaborations and trade.

Encouragingly, more countries continue to explore options to introduce a carbon price, including in low- and middle-income countries. The World Bank is gearing up to meet this increased demand from client countries for technical support on carbon pricing – and is helping countries mainstream it into wider fiscal policy and long term decarbonization strategies.  This includes developing advisory services, analytics, innovation and hosting initiatives such as the Partnership for Market Implementation (PMI). The PMI will provide technical assistance to at least 30 countries in developing and implementing domestic carbon pricing and operationalizing Article 6 of the Paris Agreement.

The World Bank Group’s Climate Change Action Plan (2021-25) committed to increase the World Bank’s climate finance target, align financing flows with the goals of the Paris Agreement, and achieve results that integrate climate and development. Through this Action Plan, the World Bank Group is well positioned to leverage its convening power, knowledge and research, and country program support to help countries make informed climate decisions, including on carbon pricing.

This piece appears as a World Bank Blog and the foreword of the 2022 annual State and Trends of Carbon Pricing report. The full report is available for download here.

Ms. Van Bronkhorst, a Dutch national, is the Global Director, Climate Change, Sustainable Development Practice Group at the World Bank. She joined the Bank in 2005 as an Urban Specialist in the Latin America and the Caribbean Region.  She has since held various positions, including as Sector/Practice Manager from 2012-2016 for the Disaster Risk Management and Climate Change unit in the South Asia Region and, most recently, as Practice Manager for Urban Development and Disaster Risk Management for East and Southern Africa in the Social, Urban, Rural and Resilience GP. At present Global Director, Climate Change, she oversees the key strategic priorities and implementation of the Climate Change Action Plan, working closely with Climate Change Management team and staff, other Global Practices, and internal and external clients.

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