New report reveals how carbon taxes and emissions trading schemes are curbing emissions and generating valuable revenues for exchequers

Carbon pricing mechanisms delivered record revenues last year, hitting $95bn for the first time, according to a new analysis from the World Bank.

The Bank's latest report - titled State And Trends of Carbon Pricing - confirmed that carbon taxes and emissions trading schemes (ETS) are proving an increasingly valuable source of revenues for Treasuries wrestling with high inflation and fiscal pressures.

"Carbon pricing can be an effective way to incorporate the costs of climate change into economic decision making, thereby incentivizing climate action." said Jennifer Sara, global director for climate change at the World Bank. "The good news from this report is that even in difficult economic times, governments are prioritising direct carbon pricing policies to reduce emissions."

However, she added that "to really drive change at the scale needed, we will need to see big advances both in terms of coverage and price".

The report, which is now in its 10th year, found that 23 per cent of global greenhouse gas emissions are now covered by 73 different carbon trading or taxation instruments. This marks a huge increase on the seven per cent coverage recorded a decade ago, but it is still well short of the global reach some economists argue will be needed to help drive down global emissions.

However, the report detailed how carbon pricing regimes are set to become increasingly commonplace in the coming years, while reforms are also serving to drive up carbon prices.

New carbon pricing instruments were implemented in Austria and Indonesia last year, as well as in subnational jurisdictions in the United States and Mexico, the report stated. Moreover, Australia is scheduled to recommence carbon pricing with a rate-based ETS due to start in July 2023 and countries including Chile, Malaysia, Vietnam, Thailand, and Türkiye continue to work towards implementing direct carbon pricing.

Arguably the most significant developments came in the EU, where the price of a tonne of carbon set through the bloc's ETS recently topped €100 for the first time and member states pushed through a sweeping package of reforms to limit the supply of allowances, extend carbon pricing to cover shipping, buildings, and other sectors, and direct the resulting revenues to support businesses and households.

The bloc also approved plans for a Carbon Border Adjustment Mechanism, which will impose import tariffs on products from jurisdictions without sufficiently ambitious climate policy regimes in place.

Advocates of the approach predict it will incentivise countries that export to the EU to introduce their own carbon pricing policies.