It is more than three decades since Finland – responding to the emerging alarm about ‘greenhouse’ gas emissions – became the first jurisdiction in the world to introduce a carbon price in 1990.
Much of the rest of Europe has since followed suit, setting the pace globally on the use of carbon pricing to discourage emissions. Meanwhile, other regions and nations – including some of the world’s biggest emitters in Asia and North America – have, in relative terms, dragged their feet.
To date, 20 European countries have implemented carbon taxes. The taxes range from as little as US$0.078 per ton of carbon emitted in Poland up to US$137 per ton in Sweden – currently the highest in the world.
True to form, the European Union (EU) was the first jurisdiction to implement an Emissions Trading System (ETS) in 2005. As of 2021, The EU ETS covered 31 national jurisdictions, accounting for 3.14% of global emissions. In addition, several European countries impose their own price on carbon via an ETS (Germany) or carbon tax (France, Denmark, Portugal…).
In America, progress has been slow and piecemeal by comparison. Alberta in Canada was the first North American jurisdiction to introduce an ETS in 2007, followed in 2009 by RGGI – an initiative of 11 eastern US states, including New York and New Jersey, to cap and reduce carbon emissions from the power sector.
It was another year before any Asian country acted to put a price on carbon, with Japan becoming the first to implement an ETS in 2010. Singapore joined the carbon pricing push in 2019, but the big event for Asia came in 2021 when the world’s biggest emitter, China, introduced a national ETS – in one stroke, effectively doubling the carbon pricing coverage of the APAC region (generally defined as all of Asia plus neighbouring countries with western Pacific coastlines such as Russia and Australia - however, since South Africa is the only country from Africa with a carbon price, we grouped it in the APAC).
The slow embrace of carbon pricing globally was accompanied by relatively little change in actual carbon prices in the early years and decades of the schemes. It was not until 2017 that the carbon price in Europe even started to take off, as shown in the accompanying graphic.
Except for a brief plunge during the first phase of the COVID-19 pandemic in April 2020, the EU carbon price has soared – particularly since Britain’s departure from the union. Carbon prices in America and Asia, by comparison, have moved relatively slowly.
In the five years to August 2021, carbon prices (as measured by our Real Carbon Aggregate Price Index) increased by 46 per cent in America (to $16) and by 42 per cent in APAC (to $8.50). In Europe, during the same period, the carbon price increased by 380% to $54.60!
Once again, it seems, Europe is leading the way on climate action. Having introduced the first carbon pricing schemes three decades ago, it now presides over carbon price levels that will surely encourage the greatest shifts out of carbon-intensive economic activity in history. At least, we hope.
