Executive summary: The number of carbon pricing mechanisms in operation around the world continues to grow, with a total of 74 carbon pricing mechanisms in operation globally by the end of 2023. The EU ETS accounts for about 43% of the total global direct carbon pricing revenue, dominating the global carbon pricing revenue. On the one hand, this is due to the significant scale and price advantages of the EU ETS; On the other hand, it is related to the high proportion of its carbon allowance auction. At present, the only carbon pricing mechanism implemented in mainland China is the carbon market, the carbon tax is in the research and formulation stage, and internal carbon pricing has been adopted by some enterprises, while other carbon pricing mechanisms have not yet been implemented. Overall, the development of the carbon pricing mechanism in the mainland is still in the stage of accelerated development. The overall transaction price of carbon emission allowances in China's national carbon market has shown a gradual upward trend. Since 2024, the launch of the national voluntary greenhouse gas emission reduction trading market and the release of the Interim Regulations on the Administration of Carbon Emission Trading have released positive signals and pushed the CEA price of the national carbon market in mainland China from more than 70 yuan to more than 90 yuan.
Keywords: carbon pricing classification, global carbon pricing, EU carbon price, China's carbon pricing development status, China's carbon market paid bidding, China's carbon market offset mechanism, China's carbon price
1. Definition and classification of carbon pricing
The "carbon" in carbon pricing refers to the greenhouse gases represented by carbon dioxide, while the "pricing" refers to the mechanism for giving a clear price to greenhouse gas emissions in tons of carbon dioxide equivalent. At present, there are five main forms of carbon pricing mechanisms in the world, among which carbon tax, carbon emission trading system and carbon credit mechanism are known as direct carbon pricing instruments, which are the three most common carbon pricing tools. Carbon tax refers to the tax levied by the government on carbon emissions, and the main means of carbon tax are to increase the tax rate, expand the coverage of carbon tax, abolish carbon tax exemption and levy carbon tariff. The Emissions Trading System (ETS) refers to the trading market in which carbon emission allowances are circulated as commodities, also known as the carbon market. There are two forms of ETS: carbon emission allowance (CEA) trading and carbon credit trading. Carbon emission allowances refer to the carbon emission allowances allocated by government departments to key emitting enterprises within a specified period of time in accordance with certain rules, and key emitting enterprises can choose to use the allowances to offset their own emission reduction quotas or trade. Carbon tax and carbon emission allowance trading are mandatory, while the carbon credit mechanism is a voluntary-based carbon pricing instrument, through which countries or enterprises can create tradable credits through voluntary emission reduction actions and trade them. Carbon credits are integrated into the carbon emissions trading system.
2. Analysis of the development of global carbon pricing
(1) The development process of the global carbon pricing mechanism
The development of a global carbon pricing mechanism can be divided into three phases. The first stage was from 1990 to 2004, marked by the implementation of carbon taxes in European countries such as Finland, Sweden and Norway in the 90s of the last century. At this stage, a carbon tax is the only carbon pricing mechanism. The second phase, from 2005 to 2015, marked the entry into a new phase with the entry into force of the Kyoto Protocol and the operation of the EU ETS. During this period, the two carbon pricing mechanisms of carbon tax and carbon emission trading gradually matured, with Switzerland, Ireland, Iceland and other countries trying to introduce carbon taxes, and many countries such as New Zealand and South Korea establishing carbon emission trading systems. The third phase is from 2016 to the present. The third phase was marked by the entry into force of the Paris Agreement, and the world's major economies reached a new consensus on carbon emission reduction, with more than 130 countries and regions clearly proposing the goal of "carbon neutrality" or "net zero emissions". Since 2016, many countries have promoted the construction of carbon markets or announced carbon taxes, and there has been a significant increase in the global carbon pricing mechanism in operation.
(2) The development status of global carbon pricing mechanisms
According to data released by the World Bank, the number of carbon pricing mechanisms in operation around the world continues to grow. By the end of 2023, there were 74 carbon pricing mechanisms in operation globally, an increase of four from the end of 2022. Among them, in 2023, three carbon emission trading systems will be added to the world, namely the Australia Safeguard Mechanism, Washington CCA, and Indonesia ETS, bringing the global carbon emission trading system to 37. The Washington State ETS was launched in January 2023 and the Indonesian ETS was launched in September 2023. In 2023, a global carbon tax will be added to the Durango, Mexico state.
Global carbon pricing mechanism revenues are growing rapidly. In 2016, the global carbon pricing mechanism revenue was US$22 billion, increasing to US$97 billion in 2022, with a compound annual growth rate of 28.1%. The EU ETS is the highest-income tool in the world for direct carbon pricing. Its total annual revenue accounts for about 43% of the total global direct carbon pricing revenue, and it dominates global carbon pricing revenue. On the one hand, this is due to the significant scale and price advantages of the EU ETS; On the other hand, it is related to the high proportion of its carbon allowance auction. In contrast, China's national ETS covers more than twice as much emissions as the EU ETS, but because China's ETS currently uses a 100% free allocation of allowances, the actual cost of emission control for most participants is low, and it cannot generate high revenues for the government.
(3) Analysis of the trend of carbon prices in the European Union Emissions Trading System (EU ETS).
The carbon price of the European Union Emissions Trading System (EU ETS) is mainly affected by energy prices, the international situation and macro policies. In 2021, the EU adjusted the ETS quota scheme to align it with the new climate target of reducing emissions by at least 55% by 2030, which led to a tightening of the EU ETS market balance and a skyrocketing EU ETS license price; In addition, the surge in natural gas prices in the European market has led to an increase in coal-fired power generation, which has stimulated the demand for carbon emission allowances and driven up the price of carbon emission allowances. In 2021, the EU ETS carbon trading price increased significantly. In 2022, the geopolitical conflict triggered the energy crisis in Europe, and the EU ETS carbon trading price moved forward under pressure amid fluctuations, and the average EU carbon price in 2022 was 81 euros/ton, which was weaker than the increase in 2021.
In February, the EU carbon price hit a record high of 100.23 euros/tonne of carbon dioxide equivalent, mainly due to the adoption of the "Fit for 55" decision by the EU in December 2022 and the need for the carbon market to absorb the demand squeeze for a period of time after the peak of the energy crisis in 2022. Since then, market prices have remained above 80 euros per tonne for almost 10 months, despite the continued decline in energy prices and the acceleration of the quota auction process in the EU. At the end of 2023, EU carbon prices continued to fall to 66.76 euros/tonne, down 33% from the February peak and the lowest level since October 2022. Since 2024, the EU carbon price has continued to be weak since February 2023, and as of March 28, 2024, the EU carbon price is 59.98 euros/ton.
Note: This article is excerpted from the industry analysis article "Analysis of the Current Situation of Global and Chinese Carbon Pricing Mechanism and Carbon Price in 2024 [Figure]" released by Zhiyan Consulting.
The "2024 China Carbon Pricing Market Operation Mechanism Research and Development Trend Analysis Report" released by Zhiyan Consulting is based on authoritative data released by the National Bureau of Statistics, government agencies, and industry associations, combined with the collection and analysis of in-depth research data, expert feedback data, internal operation data and other global data to improve the efficiency of customers' business decision-making. This report makes an in-depth investigation and research on the current situation and market of China's carbon pricing industry, and makes a prudent judgment on the future development prospects and trends according to the development trajectory of the industry, which provides a crucial decision-making reference for investors to find new market investment opportunities and enter the investment layout of the carbon pricing industry.
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