The EU is making a fresh push for global carbon pricing after working with a series of countries to establish emissions trading schemes, ahead of the looming introduction of its contentious carbon border tax from the new year.
The European Commission’s international carbon pricing task force has collaborated with more than 40 countries in the past year and is encouraging the biggest polluters with nascent carbon markets, such as China and India, to make them more effective.
At least three countries have put in place legislation to establish an emissions trading system (ETS) which will sell allowances to polluters. Brazil and Turkey have approved laws for carbon markets in the past year, while Japan has moved from a voluntary to a mandatory scheme.
In March, China extended its emissions trading system to cover companies in sectors including aluminium, steel and cement, all of which are covered by the EU’s carbon border adjustment mechanism (CBAM). It is also developing a carbon accounting framework with more than 50 specific standards that is expected to be set by the end of 2025.
EU officials say they also hope for positive developments in Mexico, ahead of the UN COP30 climate summit in November.
Carbon pricing now covers 28 per cent of global emissions, according to the World Bank’s 2025 carbon pricing report. Eighty countries have introduced a carbon market or emissions trading scheme, up from 10 in 2005.
However, most of these schemes have prices far below the EU market’s current level of about €76 a tonne of carbon dioxide. The bloc’s price has slid below previous highs of almost €100 this year as a result of a surge in clean power supplies and lower fossil fuel energy demand.
The EU’s trading scheme was launched in 2005, operating on a cap-and-trade principle, and requires companies in high-polluting sectors such as power, steel and cement production to buy the permits.
From January, the EU will begin charging the carbon levy on imported goods, to reduce the competitive disadvantage for European producers.
EU climate commissioner Wopke Hoekstra told the Financial Times that the combination of an “acknowledgment that an ETS works” and the “implementation effect” of the carbon tax system had encouraged countries to set up their own carbon pricing schemes.
“[Carbon pricing] is something that has momentum. It is a very efficient diplomatic tool,” he said. The EU will publish a policy paper on its climate diplomacy efforts on Thursday alongside a report on the work of the carbon pricing task force.
Hoekstra said: “[China is] keen to see how our system works and to compare notes. Even though I think we have been too naive in how we have sometimes co-operated in the domain of climate in the past, I have no regrets to help them advance on carbon markets.”
EU climate commissioner Wopke Hoekstra said other countries were keen to learn from the bloc in setting up their own carbon pricing schemes. © Christophe Petit Tesson/EPA/Shutterstock
Any carbon price paid in the country of production can be deducted from the import levy, under the EU scheme.
This has encouraged exporting nations to introduce or strengthen their own domestic carbon pricing scheme — even as countries including Brazil, India and China have criticised the EU carbon levy as a unilateral trade measure that will have punitive effects on developing economies.
Donald Trump’s US administration has also flagged its concerns about the border tax, as its own industries lobby against it.
Brazil, the host of next month’s UN climate summit, is seeking to use the COP30 gathering to push for a more collaborative approach to global carbon pricing. The finance ministry is looking for the EU and China to join it in an international “coalition” with shared standards on emission trading schemes and carbon border tariffs.
The Brazilian proposals would involve changes to the EU’s approach.
Carbon border fees would be reduced for lower-income countries, and waived for the poorest nations. Brazil is also suggesting some revenue from these import levies should be used to provide climate finance in developing countries — an idea the EU considered and rejected.
EU officials have noted it would be difficult to create convergence between carbon pricing systems that barely exist.
But Rafael Dubeux, a finance ministry official leading work on the Brazilian proposal, argued the EU would benefit from participating in the scheme, rather than retaining a de facto role as a sole global standard-setter for carbon markets.
“Europe right now is leading the world in carbon pricing . . . it’s good for them to share this burden with other countries,” he said.
EU officials involved in its task force have said some countries have shown particular interest in carbon pricing as a revenue-generating measure and want to learn from the experience of the EU’s Innovation Fund, which channels money back into decarbonisation projects.
Brazil, for example, recycles the revenues earned through emissions permits sold to heavy industry to support its rainforests.
Other questions revolve around the EU’s market stability reserve, which balances out the number of emissions allowances available on the market, and how the bloc has integrated the monitoring and reporting systems with the carbon market itself. The task force’s focus is mostly on industrialising countries.
One aspect that the EU is attempting to encourage is a more regionalised approach, given the lack of capacity in many countries’ civil services. “If you look at south-east Asia or Latin America, for the smaller countries there, it could also make sense for them to try to find some synergies,” one EU official said.
“The experience of the ETS of the EU is huge. You’ve got 20 years of experience,” said Maria Jose Garcia, project manager for Chile’s partnership for market implementation run by the World Bank, who visited Brussels in July. “There are diverse aspects that we are hoping to replicate, and learn from the mistakes.”
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