Washington DC, May 2020 State and Trends of Carbon Pricing 2020State and Trends of Carbon Pricing 2020 Washington DC, May 2020 The preparation of this report was led by the World Bank, with the support of Guidehouse and with contributions from the International Carbon Action Partnership. We also acknowledge support from CDP and the Institute for Climate Economics for the preparation of this report. The World Bank task team responsible for this report was composed of Marissa Santikarn, Angela Naneu Churie Kallhauge, Suneira Rana, Daniel Besley and Joseph Pryor. The Guidehouse team included Maurice Quant, Long Lam, Jialiang Zhang, Louis Mark, Cara Merusi and Ian Trim. The report benefited greatly from the valuable contributions and perspectives of our colleagues in the climate and carbon finance community, who have ensured the quality and clarity of this report William Acworth, Erik van Andel, Nicolette Bartlett, Tanguy de Bienassis, Ben Blank, Breen Byrnes, Karan Capoor, Cyril Cassisa, Mavis Chan, Timila Dhakhwa, Ana Maria Dias, Dominik Englert, Susana Escria, Marion Fetet, Harikumar Gadde, Dida Gardera, Greenhouse Gas Inventory and Research Center of Korea, Stephane Hallegatte, Larry Hegan, Jason Hollett, Dorine Hugenholtz, Ešef Husic, Peter Janoska, Yuji Jigata, Junaed Khan, Emma Krause, Francisco DallOrso Len, Jeff Lindberg, Emdio Lopes, Andrane Lussier, Memory Machingambi, Paul Martin, Taisei Matsuki, Dylan Morgan, Sarah Moyer, Klaus Oppermann, Ian Parry, Janet Peace, Sbastien Postic, Qubec Ministry of the Environment and the Fight against Climate Change, Luca Lo Re, Marcos Castro Rodriguez, Stephanie Rogers, Stephan Schmidt, Catherine Sear, Juan Pedro Searle, Kensuke Suda, UNFCCC Secretariat, Elisabeth Vitzthum, Olga Yukhymchuk. This report was supported through the Carbon Pricing Leadership Coalition and Partnership for Market Readiness Programs. 2020 International Bank for Reconstruction and Development / The World Bank 1818 H Street NW, Washington DC 20433 Telephone 202-473-1000; Internet www.worldbank.org Some rights reserved 1 2 3 4 23 22 21 20 This work is a product of the staff of The World Bank with external contributions. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of cutive Directors, or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other ination shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. 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Examples of components can include, but are not limited to, tables, figures, or images. All queries on rights and licenses should be addressed to the Publishing and Knowledge Division, The World Bank, 1818 H Street NW, Washington, DC 20433, USA; fax 202-522-2625; e-mail pubrightsworldbank.org. ISBN electronic 978-1-4648-1586-7 DOI 10.1596/978-1-4648-1586-7 Picture credits page 14 gustavofrazao / Adobe Stock. page 18 Flexmedia / Adobe Stock. page 46 FocalPoint / . page 84 mayichao / . page 96 Mieszko9 / Adobe Stock. Further permission required for reuse. Cover and interior design Meike Naumann Visuelle KommunikationIt is hard to focus on anything other than the current global health crisis. COVID-19 has upended our societies and the loss of normalcy, human connection and the economic toll is not to be underestimated. Unfortunately, even after countries embark on the path to recovery after this crisis, the threat of climate change remains. Bush fires raged across California and Australia at the beginning of this year, the coral reef suffered a third mass bleaching in five years and Antarctica experienced the first known heatwave. In the last year, growing public and investor pressure has moved climate change further up the agenda. As a result, we saw increased attention and efforts to address climate change around the world. More than 70 countries have committed to working toward net zero emissions by 2050 and to enhance their international climate pledges under the Paris Agreement. How these government and private sector pledges will be translated into action will be crucial in ensuring we can confine global warming to below two degrees Celsius. An effective carbon price is one tool that can help both countries and companies to successfully decarbonize economies and supply chains. Encouragingly, as more ambitious climate pledges are taken, many of these programs and strategies are factoring in the role and potential for carbon pricing and carbon markets. While we may understand the economic theory of carbon pricing make something more expensive and we will use less of it – the ramifications of shifting to a low-carbon economy will likely require a significant restructure of our economies and societies. The low-carbon transition must have public support and be socially just. Carefully planning these policies, including carbon pricing, and proactive communication on the benefits they can bring to our communities, workers and environment, will be critical. Emissions reductions can bring significant health benefits, while revenue generated from a carbon price needs to be focused on long term solutions. These carbon revenues can be used support other development policies to meet critical infrastructure and education. Furthermore, as traditional means of business and production may be disrupted when these climate policies ramp up, a plan to support these communities will also be important. Each year, we at the World Bank prepare this report to update readers on the developments in carbon pricing around the world. In this year’s report we also look at the role and use of crediting mechanisms. Over recent years, there has been a surge of public and private interest in carbon credits as part of a broader decarbonization portfolio. Countries are increasingly pairing their domestic carbon taxes and carbon markets with a crediting mechanism to stimulate action and investments in certain sectors, while giving governments and businesses some flexibility in tackling emissions in hard to abate sectors. Companies are also purchasing credits on the voluntary market in line with growing investor and consumer awareness of climate action. Internationally, credits will also play a key role in reducing emissions from airlines with the international aviation offset scheme – CORSIA – coming into effect this year. However, robust standards are critical to ensuring these credits have environmental integrity. The World Bank is committed to supporting countries as they assess and put carbon pricing policies in place. A well-designed carbon price embedded in a broader package of climate, energy and development policies and measures remains critical to solving the climate challenge and advancing the achievement of sustainable development aspirations. Bernice Van Bronkhorst, Climate Change Global Director, World Bank Group Foreword 1List of abbreviations and acronyms C Degrees Celsius ABM Adaption Benefit Mechanism ACCU Australia Carbon Credit Unit ACR American Carbon Registry ADB Asian Development Bank BAU Business as usual BC British Columbia BFCER Beijing Forestry Certified Emission Reduction CAR Clean Air Rule CCER Chinese certified emission reductions CCF Climate Cent Foundation CCIR Carbon Competitive Incentive Regulation CCR Cost Containment Reserve CCS Carbon capture and storage CCU Carbon capture and utilization CDM Clean Development Mechanism CER Certified Emission Reduction CFI Carbon Farming Initiative Ci-Dev Carbon Initiative for Development CO 2 Carbon dioxide CO 2 e Carbon dioxide equivalent COP Conference of the Parties CORSIA Carbon Offset and Reduction Scheme for International Aviation CPA Component Project Activities CPLC Carbon Pricing Leadership Coalition CRT Climate Reserve Tonne DC District of Columbia EBRD European Bank for Reconstruction and Development ECR Emissions Containment Reserve EPS Emissions Perance Standard ERF Emissions Reduction Fund ERPA Emission Reductions Payment Agreement ERU Emission Reductions Unit ETS Emissions Trading System EU European Union EUA European Union Allowance FFCER Fujian Forestry Certified Emission Reduction FCPF Forest Carbon Partnership Facility FSB-TCFD Financial Stability Board-Task Force on Climate-related Financial Disclosures GCF Green Climate Fund GEC Global Environment Centre Foundation GGIRCA Greenhouse Gas Industrial Reporting and Control Act GHG Greenhouse gas GtCO 2 e Gigaton of carbon dioxide equivalent HB House Bill HFC Hydrofluorocarbon ICAO International Civil Aviation Organization IEA International Energy Agency 2IMF International Monetary Fund IMO International Maritime Organization IPCC Intergovernmental Panel on Climate Change ISFL Initiative for Sustainable Forest Landscapes ITMO Internationally Transferred Mitigation Outcome J-VER Japan Verified Emission Reduction JCM Joint Crediting Mechanism JI Joint Implementation KliK Climate Protection and Carbon Offset Foundation KOC Korean Offset Credits ktCO 2 e Kiloton of carbon dioxide equivalent MDB Multilateral development bank MoU Memorandum of understanding MRV Monitoring, Reporting and Verification MSR Market stability reserve MtCO 2 e Megaton of carbon dioxide equivalent N 2 O Nitrous oxide NACAG Nitric Acid Action Group NACAP Nitric Acid Climate Auctions Program NDC Nationally Determined Contribution NDRC National Development and Re Commission NWT Northwest Territories NZU New Zealand Unit OBPS Output-Based Pricing System OMGE Overall Mitigation in Global Emissions OPR Offset Project Registry PAF Pilot Auction Facility PFC Perfluorocarbon PHCER Pu Hui Certified Emission Reduction PMR Partnership for Market Readiness PoA Programme of Activities RBCF Results-based Climate Finance REDD Reducing Emissions from Deforestation and Forest Degradation REDD Extends REDD by including sustainable forest management, conservation of forests, and enhancement of carbon sinks RGGI Regional Greenhouse Gas Initiative ROC Registry Offset Credits SB Senate Bill SCF Standardized Crediting Framework SDG Sustainable Development Goal SD VISta Sustainable Development Verified Impact Standard SEMAR NAT Secretariat of Environment and Natural Resources t Ton note that, unless specified otherwise, ton in this report refers to a metric ton 1,000 kg TAB Technical Advisory Board TCAF Transative Carbon Asset Facility TCFD Task Force on Climate-related Financial Disclosures TCI Transportation and Climate Initiative tCO 2 Ton of carbon dioxide tCO 2 e Ton of carbon dioxide equivalent TIER Technology Innovation and Emissions Reduction TMG Tokyo Metropolitan Government UK United Kingdom UN United Nations UNFCCC United Nations Framework Convention on Climate Change USA United States of America VCS Verified Carbon Standard VCU Verified Carbon Unit VER Verified Emissions Reduction WTO World Trade Organization 3Table of contents Foreword 1 List of abbrevations and acronyms 2 cutive summary 6 1. Introduction 14 2. Regional, national, and subnational carbon pricing initiatives 18 2.1 Recent developments, future and emerging trends 19 2.2 Detailed overview of carbon pricing initiatives 29 3. Carbon crediting mechanisms 46 3.1 The concept and role of crediting mechanisms in climate action 47 3.2 Carbon crediting trends 50 3.3 Overview of crediting mechanisms 58 3.3.1 International mechanisms 59 3.3.2 Major independent crediting mechanisms 61 3.3.3 Regional, national and subnational crediting mechanisms 65 4. International carbon pricing initiatives 84 4.1 NDCs under the Paris Agreement 85 4.2 International carbon pricing initiatives associated with the Paris Agreement 87 4.3 Results-based climate finance RBCF 91 4.4 International aviation 93 4.5 International shipping 95 5. Internal carbon pricing 96 Appendix A, Exchange rates 101 Appendix B, Detailed overview of carbon pricing initiatives in the Canadian provinces and territories 102Figures Figure ES.1 Carbon pricing initiatives implemented, scheduled for implementation and under consideration ETS and carbon tax 10 Figure ES.2 Share of global emissions covered by carbon pricing initiatives ETS and carbon tax 11 Figure ES.3 Prices in implemented carbon pricing initiatives 12 Figure ES.4 Carbon price, share of emissions covered and carbon pricing revenues of implemented carbon pricing initiatives 13 Figure 2.1 Carbon pricing initiatives implemented, scheduled for implementation and under consideration ETS and carbon tax 24 Figure 2.2 Share of global emissions covered by carbon pricing initiatives ETS and carbon tax 25 Figure 2.3 Prices in implemented carbon pricing initiatives 26 Figure 2.4 Carbon price and emissions coverage of implemented carbon pricing initiatives 27 Figure 2.5 Carbon price, share of emissions covered and carbon pricing revenues of implemented carbon