Effective Carbon Rates 2025

The Effective Carbon Rates (ECR) metric summarises the price signals from ETSs, carbon taxes and fuel excise taxes, expressed in euros per tonne of CO₂ equivalent (EUR/tCO₂e). Regardless of their underlying policy objectives, these instruments all apply to a base that is either GHG emissions or directly proportional to them. In 2023, 44% of emissions were subject to a positive ECR.

The distribution of ECRs is uneven: in 2023, around 16% of GHG emissions faced an ECR over EUR 30/tCO₂e, and around 11% of GHG emissions faced an ECR over EUR 60/tCO₂e. These shares have increased since 2018, when the corresponding shares were at 13% and 7%, respectively.

As of 2023, over 50 countries have implemented carbon pricing instruments, with continued expansion across regions and sectors. New systems have been introduced, or are under consideration, in Asia, Europe, and Latin America and the Caribbean. Coverage is deepening in sectors where carbon pricing is already established, such as industry and electricity, while extending to new sectors including international shipping and agriculture.

Carbon tax coverage remained stable between 2018 and 2023, at around 5%. By contrast, coverage by ETSs more than doubled over the same period, increasing from 10% to 22%. The expansion of the Chinese national ETS – to include aluminium, cement and steel – could further raise the overall share of emissions priced through carbon pricing instruments to 34% in 2025.

In 2023, carbon taxes mostly cover buildings and transport sector emissions (resp. 11% and 13% of their CO₂ emissions) and ETSs electricity and industry sector emissions (resp. 58.5% and 15% of their CO₂ emissions from energy use). ETS coverage of buildings and transport sector emissions has also been increasing, reaching 8% and 7% in 2023.

There is a shift in ETSs from systems with a pre-determined cap (e.g. cap-and-trade) to intensity-based systems, which set targets based on the carbon intensity of production and thus do not have a fixed cap. The share of intensity-based ETSs has expanded significantly – from 2 out of 20 in 2018 to 12 out of 34 in 2023, now representing about 70% of emissions covered by ETSs. This trend is closely linked to the growing use of accounting for current production levels in free allowance allocation methods, even within traditional cap-and-trade systems.

Traditionally, compliance in ETSs has relied on the use of permits – either received for free, purchased from other covered entities through trading, or acquired from the government via auctions or fixed-price funds. Compliance in ETSs can also allow for sectoral or in some cases geographical flexibility, through the use of carbon credits, and temporal flexibility, allowing allowances to be banked – or, in some cases, borrowed.

In 2023, more than half of ETSs allowed the use of carbon credits for compliance, while almost all permitted banking, both options generally being subject to quantitative limits. These various compliance options also relax ETS caps.