Carbon pricing and climate governance take centre stage as ESG BROADCAST shares key takeaways.
The State and Trends of Carbon Pricing 2025 report published by the World Bank delivers a thorough review of how carbon pricing has shifted from experimental policy to core climate and economic governance. Set against persistent global economic uncertainties and diverse national capacities, the report evaluates where carbon pricing stands in 2025 and what structural dynamics are shaping its future.
A central insight of the report is the marked expansion of carbon pricing coverage. As of 2025, emissions trading systems (ETSs) and carbon taxes cover roughly 28 percent of global greenhouse gas emissions, a dramatic rise from about 5 percent in 2005. This growth is propelled not only by advanced economies but also by large middle-income countries. China’s widening national ETS, now covering additional energy-intensive industrial sectors, exemplifies how carbon pricing can be adapted to emerging markets and their development priorities.
The fiscal role of carbon pricing is another key dimension underscored in the report. For the second consecutive year, revenues from carbon taxes and ETSs surpassed USD 100 billion, even amid softening allowance prices in some major systems. Crucially, more than half of these revenues are being allocated to environmental protection, infrastructure, and development priorities. This pattern reinforces carbon pricing’s dual utility: reducing emissions while mobilizing domestic resources for climate and sustainable development.
The report also emphasizes growing sophistication in policy design. Governments are introducing market stability mechanisms, price floors, and multi-year compliance periods to reduce volatility and boost investment certainty. A notable trend is the rise of rate-based ETSs, particularly in India, Türkiye, Indonesia, and China, that regulate emissions intensity rather than absolute emissions. These systems provide greater flexibility for rapidly growing economies while still catalyzing efficiency improvements and technological progress.
Sectoral coverage remains uneven, however. The power and heavy industry sectors have seen significant pricing, yet agriculture, waste, and parts of transport largely remain outside direct carbon pricing frameworks. In this context, carbon crediting mechanisms have become important complements. The report highlights a surge in compliance driven demand in 2024 and growing voluntary interest in high integrity credits such as nature based removals and clean cooking projects.
Talking of recent developments, a significant global policy milestone was achieved at COP30 in Belém, Brazil, where a group of 18 countries and the European Union endorsed the Open Coalition on Compliance Carbon Markets, a multilateral initiative to strengthen cooperation on regulated carbon markets worldwide. This coalition aims to harmonize carbon pricing policies, share best practices in monitoring and verification, and explore long-term interoperability of carbon markets to support countries’ climate goals under the Paris Agreement. Members include major economies such as Brazil, China, the EU, the United Kingdom, Canada, and Mexico, reflecting a growing political consensus on the role of carbon pricing as a central policy tool for emissions reduction. The coalition’s activities are expected to influence how national carbon pricing systems evolve and integrate with international climate objectives in the coming years.
Strategic significance lies in the report’s positioning of carbon pricing as a durable, adaptable pillar of global climate policy. While current price levels remain below those consistent with long-term temperature goals, the expanding coverage, increasingly sophisticated policy design, and closer integration with fiscal, trade, and development objectives indicate that carbon pricing will continue to shape climate-aligned economic governance in the coming decade.
