Why is News :
- The World Bank released its 2025 Carbon Pricing report, noting that:
- 28% of global GHG emissions are now covered under carbon pricing.
- Over $100 billion in revenues have been mobilized globally via carbon taxes, trading, and credits.
What Is Carbon Pricing?
- A market-based tool that assigns a monetary cost to carbon emissions, incentivizing emission cuts.
- Internalizes externalities like climate-related disasters, health impacts, etc.
Types of Carbon Pricing Mechanisms
- Carbon Tax – Fixed tax per tonne of CO₂
- Emissions Trading System (ETS) – Cap-and-trade model for trading emissions allowances.
- Carbon Credits – Issued for verified emission reduction activities (e.g., afforestation).
Key Highlights of the 2025 Report
- Instrument Expansion: 80 systems globally (43 carbon taxes + 37 ETSs).
- India’s Progress: India’s ETS set for 2024, uses benchmark-based intensity limits instead of absolute caps.
- Rising Coverage: Now covers 28% of global emissions, up from earlier years.
- Revenue Mobilization: Over $100 billion globally in 2024.
- Sector Focus: Power > Industry > Aviation; agriculture & waste largely excluded.
- Nature-Based Credits Dominate: $14 billion (Q1–Q3 2024) raised via afforestation and land restoration.
- Tech-based Carbon Removal Growing: Innovations like Direct Air Capture (DAC), though still under-delivering.
- India, Brazil, Türkiye developing new pricing strategies.
Challenges Identified
- Uneven Sector Coverage: Major gaps in agriculture and waste sectors.
- Volatile Voluntary Markets: Uncertainty in demand, credit integrity
- Delivery Gaps: Only 318,000 tons of 8 million tons of engineered removals delivered.
- MRV Weaknesses: Poor Monitoring, Reporting, and Verification (MRV) in developing countries.
- Equity Risks: Carbon pricing may burden low-income households via fuel or power cost hikes.
Recommendations
- Expand Sectoral Reach: Use tailored strategies to bring in agriculture & waste.
- Enhance MRV: Use blockchain and satellite tech for credit transparency.
- Standardize Voluntary Markets: Harmonize bodies like Verra, Gold Standard.
- Scale Tech Solutions: Public-private partnerships for DAC and similar innovations.
- Ensure Equity: Reinvest revenues in clean energy subsidies, welfare, and health.
Significance for India
India’s domestic ETS is in progress, crucial for:
- Meeting NDC targets.
- Mobilizing green finance.
- Driving innovation in clean tech.
UPSC Relevance :
GS Paper: GS3 – Environment; Economy; Climate Change
Mains Practice Question
Q. Discuss the role of carbon pricing as an instrument for climate mitigation. Examine the challenges and opportunities for implementing such mechanisms in India.
