## More Countries Are Pricing Carbon, but Emissions Are Still Too Cheap

_IMF Blog, July 21, 2022_

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**Canonical URL:** [More Countries Are Pricing Carbon, but Emissions Are Still Too Cheap](https://www.imf.org/en/blogs/articles/2022/07/21/blog-more-countries-are-pricing-carbon-but-emissions-are-still-too-cheap)

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## Bibliographic details
- Authors: Simon Black, Ian Parry, Karlygash Zhunussova
- Published: July 21, 2022

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### Overview and context
- As the world gears up to avoid a climate catastrophe by limiting global warming to 1.5 to 2 degrees Celsius, more countries are putting carbon pricing at the center of their mitigation strategies.
- Carbon pricing, in one form or another, is likely to be an essential element of mitigation strategies as the world transitions to net zero over the next three decades.
- Credit (Photo: Andrzej Rostek/iStock by Getty Images)
- Simon Black, Ian Parry, Karlygash Zhunussova — July 21, 2022
- The chart for this blog, originally published July 21, 2022, has been updated to reflect Indonesia's status as under consideration or planned.

### Current coverage and price levels
- 46 countries are pricing emissions through carbon taxes or emissions trading schemes (ETS).
- ETSs and carbon taxes cover 30 percent of emissions globally.
- Prices rise as high as $90 per ton (in the European Union).
- Global average price of carbon today is $6 per ton of CO2.
- To limit global warming, prices need to rise from $6 per ton of CO2 today to $75 by 2030.

### Policy choices and trade-offs
- Key decisions for policymakers considering introducing or scaling up carbon pricing:
  - Ease of implementation.
  - Price levels.
  - Competitiveness concerns.
  - Alignment with other mitigation instruments.
  - Coordination across countries.
- Countries may choose different approaches based on their own circumstances and objectives.

### Taxes versus emissions trading schemes (ETS)
- Carbon taxes:
  - Provide certainty over future emissions prices, helping encourage green investments and energy conservation.
  - Can be simple to implement by tweaking existing fuel taxes.
  - Provide revenues that finance ministries can use to assist the poor, cut other taxes, or boost productive investments.
  - Could be extended to broader emissions sources (for example, methane emissions from extractive industries and, in some cases, agriculture).
- Emissions trading schemes (ETS):
  - Appeal to policymakers who prefer certainty over future emission levels.
  - Can mimic some advantages of taxes, including through price floors and allowance auctions.
  - Allocating some allowances initially for free may garner support from affected firms.
  - Present significant complexity in design, implementation, and administration, making them challenging for many countries.

### Commonalities and social considerations
- Both carbon taxes and ETSs operate on the “polluter pays” principle and efficiently encourage switching to more sustainable energy sources and reducing emissions-intensive activities.
- Political acceptability is vital for the rise in carbon prices needed to tackle climate change.
- Carbon pricing reforms can protect the poor while supporting economic growth, for example:
  - Using some of the revenues to compensate vulnerable households.
  - Using remaining revenues for labor tax cuts or productive investments.
- With careful design, implementation and coordination, the economic costs of carbon pricing can be manageable.
- For some countries, costs are more than offset by domestic environmental co-benefits (such as fewer deaths from local air pollution) even before counting the global climate benefits.

*Source: IMF Blog — "More Countries Are Pricing Carbon, but Emissions Are Still Too Cheap" (July 21, 2022).*

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## References

- [Chart of the Week](https://www.imf.org/en/News/Chart-of-the-week)
- [https://www.imf.org/wp-content/uploads/2022/07/COTW-Pricing-Carbon.jpg](https://www.imf.org/wp-content/uploads/2022/07/COTW-Pricing-Carbon.jpg)
- [IMF Staff Climate Note](https://www.imf.org/en/Publications/staff-climate-notes/Issues/2022/07/14/Carbon-Taxes-or-Emissions-Trading-Systems-Instrument-Choice-and-Design-519101)

_Source: https://www.imf.org/en/blogs/articles/2022/07/21/blog-more-countries-are-pricing-carbon-but-emissions-are-still-too-cheap_