The International Carbon Action Partnership, a collection of policy makers from all levels of government that are operating or plan to operate an emissions Trading Systems (ETS), issued a new report titled Emissions Trading Worldwide, which highlights a comprehensive snapshot of global carbon markets, emphasizing their evolution, performance, and future direction.
This year’s report reflects the growing momentum in ETSs worldwide. Here are the most relevant insights from the report about how it relates to carbon markets:
There’s a rapid global expansion of carbon markets.
- 38 carbon markets are now in force globally—up from 36 in 2024—with 11 more under development and 9 under consideration.
- ETSs now cover 19% of global GHG emissions, a massive increase from just 5% in 2005.
- Coverage is growing beyond traditional sectors, with transport, buildings, maritime, and waste being added in various jurisdictions.
There’s a shift from developed to emerging economies.
- Middle-income countries are now driving the next wave of growth. Brazil enacted a legal framework for a national ETS, and India, Indonesia, Türkiye, Colombia, and Vietnam are at advanced stages of ETS development.
- These new systems often experiment with non-traditional designs, including baseline-and-credit and hybrid systems (e.g., Indonesia’s cap-tax-trade model).
Revenues have stabilized, and the focus has shifted to strategic reinvestment of revenues.
- In 2024, carbon markets generated USD 70 billion, down slightly from 2023 due to lower prices in key systems; namely the EU, the UK, and California.
- The total revenue generated since 2007 is USD 373 billion.
- There’s a growing focus on strategic reinvestment of revenues. The EU has launched a Social Climate Fund, California and Québec have set up funding for climate justice and tech innovation, and newer systems are being designed with revenue recycling mechanisms from the outset.
Market stabilization brings pricing volatility.
- After highs in 2023, many carbon markets experienced price drops in 2024 due to economic uncertainties, regulatory changes, and evolving expectations around cap stringency.
- China’s national ETS showed steady price growth, and Korea’s ETS remained stable.
There’s a shift towards market efficiency.
- A move away from free allocation toward auctioning is gaining momentum to improve market efficiency and ensure fairness.
- New systems, like Germany, Austria, and the EU ETS 2, mandate full auctioning.
- Systems like California, the UK, and the EU are reforming to tighten caps and increase ambition toward net-zero.
Carbon credits and offsets are being integrated into ETSs.
- 24 out of 38 systems allow the use of carbon credits (mostly as domestic offsets).
- South Korea is the only ETS allowing international credits for compliance.
- Offset integration is increasing, particularly in new systems, but credit markets remain fragmented due to diverging eligibility standards, domestic-only approaches, and uneven allowance pricing.
There’s a shift to global climate-trade policies and carbon border adjustments
- Systems are increasingly aware of the risks of carbon leakage and competitive disadvantage. For example, the EU and UK Carbon Border Adjustment Mechanisms are pioneering efforts to align trade and climate policy.
- More countries are exploring similar measures in response, indicating a shift in global climate-trade policy.
Invert Insights.
💡 As the report points out, international cooperation will play a key role going forward. The focus on domestic markets has led to market fragmentation across systems, and an international crediting standard will lend credibility and stability to emissions trading in the future. Cross-border cooperation will be key to implementing this across jurisdictions.
💡 The ICAP report paints a picture of a maturing, more complex carbon market landscape with growing global reach, increasing ambition, and a gradual convergence between compliance and voluntary markets. The next few years will be integral in paving the way for the future success of global emissions trading systems.
💡 The adoption of ETSs are an indication that carbon markets are here to stay. There is a cost advantage to organizations that decarbonize more quickly, especially with the rise of compliance markets. Reducing emissions rapidly while buying high-integrity credits can be a strategic cost advantage over other companies who transition more slowly. Want to learn more? Reach out to us!
