Carbon Pricing 2025: Transition to a Low-Carbon Economy Affecting 66% of Global GDP

Covering 66% of global GDP, carbon pricing through ETS and carbon taxes accelerates low-carbon growth in 2025.

Fundamentals of Carbon Markets and Pricing

As the world accelerates efforts to combat climate change, carbon markets play a key role in the transition towards low-carbon growth. These market-based mechanisms assign economic value to carbon emissions, incentivizing reductions and promoting clean technology innovations.

How Does an Emission Trading System (ETS) Work?

• Governments or regional coalitions set a total emission "cap".

• Allowances (carbon rights) allocated to companies can be traded on markets.

• Companies below their emission limits sell excess allowances; those above must buy.

• This dynamic rewards emission reductions and imposes costs on high emitters.

Voluntary Carbon Credits and Crediting Mechanisms

These voluntary systems generate tradable certificates ("carbon credits") for verified emission reductions below a defined baseline, usually linked to specific projects such as reforestation or renewable energy.

Economic Impacts of Carbon Pricing

Carbon pricing encourages businesses to invest in clean technologies, minimizing decarbonization costs and generating new revenues for climate finance. These revenues support projects benefiting vulnerable communities during the transition.

Challenges include price fluctuations, inflation pressures, and maintaining fair competition.

Global Carbon Pricing Trends in 2025

• 80 active carbon taxes and ETS; net 5 new mechanisms implemented over the past year.

• Brazil, India, and Turkey took significant legislative steps; Colombia and Indonesia expanded coverage.

• China's ETS expansion to industry increased priced emissions from 24% to 28%.

• Economies with carbon pricing represent two-thirds of global GDP.

Sectoral Scope

• Over 50% of energy production emissions and nearly 50% of industrial emissions are priced.

• The agricultural sector remains notably "unpriced."

Future Outlook: 2030 and Beyond

Carbon pricing provides a global competitive advantage beyond environmental preference. Although prices were stable in 2024, real revenues increased more than threefold over the past decade, with over half directed to green projects.

• The EU ETS and Carbon Border Adjustment Mechanism (CBAM) are reshaping trade flows.

• Expert forecasts suggest carbon prices could reach €160–200/ton by 2030, dramatically transforming energy markets and investment allocations.