This chapter discusses recent developments in carbon pricing and presents the impacts of emissions trading system (ETS) developments on ETS coverage and prices in 2024 and 2025. Section 3.1 discusses recent developments in carbon pricing and related initiatives. While it aims at describing the trends recently observed, this section does not aim at being exhaustive. Section 3.2 discusses introductions and reforms of carbon pricing instruments in 2024 and 2025, and presents the evolution of ETS permit prices in 2024 and 2025 as well as the impacts of the developments in ETSs on ETS coverage over this same period. The cut-off date for 2025 reforms discussed and included in the figures is 30 June 2025.
Effective Carbon Rates 2025
Recent Trends in Taxes on Energy Use and Carbon Pricing
3.1.1. Carbon pricing initiatives
Carbon pricing is being considered in an increasing number of countries, including in large emerging economies. The geographical coverage of carbon pricing is set to expand, with countries such as Brazil, India and Türkiye currently developing ETSs (World Bank, 2025[1]), and additional countries in Latin America and the Caribbean (e.g. Chile, Colombia) as well as in Asia (e.g. Malaysia, the Philippines, Thailand, Vietnam) developing or considering the introduction of ETSs or carbon taxes (ICAP, 2025[2]). In Japan, the voluntary GX-ETS has been operational since October 2023 and is to transition to a mandatory ETS from 2026 (ICAP, 2025[2]). Brazil’s ETS would span a broad range of sectors and include links to domestic carbon credits, India’s ETS would tackle emissions in the industry sector, and Türkiye’s ETS would cover electricity and industry emissions.
Expansion of coverage is expected in sectors typically covered (electricity, industry, buildings, transport) as well as sectors not typically covered by carbon pricing (e.g. agriculture). This is set to take place through the expanded coverage of existing policies or through the introduction of new policies. China expanded its national ETS to the cement, steel and aluminium sectors in March 2025 (ICAP, 2025[3]). The European Union (EU) ETS 2, which will apply upstream to fuels used for transport, heating, and some smaller industrial installations is due to start in 2027 (European Commission, 2025[4]). Domestic emissions in the maritime sector are currently covered in four ETSs (through upstream or point source coverage, see ICAP (2025[2])) and are being considered for inclusion in the Tianjin Pilot ETS and the UK ETS. A tripartite agreement was reached in Denmark in 2024 on a package of measures – “A Green Denmark” – which would include a tax on agricultural GHG emissions to take effect in 2030 (Ministry of Food, Agriculture and Fisheries, 2025[5]). This would be the first carbon pricing instrument to be implemented on non-energy related emissions in the agricultural sector. The New Zealand government plans to price agricultural emissions (through a mechanism other than the New Zealand ETS) by no later than 2030 (ICAP, 2025[2]).
Coverage of international aviation and shipping emissions is increasing. In 2023, aviation accounted for 2.5% of global energy-related CO2 emissions (IEA, 2023[6]). International aviation is covered through the Carbon Offsetting Reduction Scheme for International Aviation (CORSIA), a compliance system involving the use of carbon credits: international flights between participating jurisdictions have been required to report their annual CO2 emissions since 2019 (IATA, n.d.[7]) and many flights could face offsetting obligations by 2028. The international maritime sector carries over 80% of global trade by volume (UNCTAD, 2025[8]) and contributes to around 2% of global GHG emissions (IMO, 2021[9]). In 2024, the EU ETS expanded its coverage to maritime emissions and became the first carbon pricing instrument to apply to international shipping emissions: it applies to emissions from all large ships (above 5 000 gross tonnage) entering EU ports (ICAP, 2025[2]). Discussions are ongoing at the International Maritime Organization (IMO) on global regulations for the shipping industry (OECD, 2025[10]).
3.1.2. Carbon pricing design
GHG removals are increasingly being considered for inclusion in ETSs. By the end of July 2026, the European Commission is set to assess how removals could be accounted for and covered under the EU ETS (ERCST, 2025[11]; ICAP, 2025[2]). The first EU-wide voluntary framework for certifying carbon removals, carbon farming and carbon storage in products was created in December 20241 (European Commission, 2025[12]). While the certified carbon removals could not be used for compliance with the EU Emission Trading System so far, a recent proposal by the European Commission for an amendment to the European Climate Law includes the use of domestic permanent removals in the EU ETS (European Commission (press corner), 2025[13]). In 2024, the United Kingdom (UK) ETS Authority followed up on its commitment to integrate engineered greenhouse gas removals (GGRs) in the scheme by proposing policy options for how this could be done (Department for Energy Security and Net Zero, 2024[14]). Emission removals could compensate for emissions in hard-to-abate sectors (e.g. Swiss Federal Council (2022[15])) and these developments may indicate the narrowing of abatement opportunities in some jurisdictions or sectors. GHG removals are further discussed in section 4.2.
The role of auctioning in ETSs could increase, either through its introduction in systems where it is not in place or through its expansion in systems where it already operates. The EU Carbon Border Adjustment Mechanism (CBAM) entered its transitional phase in October 2023, during which only reporting is required – the gradual phase-in of the scheme, to commence in 2026, will require surrendering payments as well and will be accompanied by a gradual phase-out of free permits for EU CBAM covered-sectors (European Parliament, 2023[16]). While the Swiss government decided against introducing a parallel CBAM to the EU’s (Confédération Suisse, 2023[17]), the Swiss ETS is set to gradually phase out free allocations in the industry sector, mirroring the EU ETS approach for sectors covered by CBAM (ICAP, 2025[18]).2 In Korea, in December 2024, the fourth “Basic Plan for the Emissions Trading System” adopted in 2024 addresses the period from 2026 to 2035 and includes measures for auctioning to increase significantly in the electricity and other high-emitting sectors. In the Chinese national ETS, where allowances are currently exclusively distributed for free, the Interim Regulations clarify that auctioning is to be introduced and gradually expanded. The introduction of auctioning is currently under development in Kazakhstan (ICAP, 2025[2]).
New linking initiatives are being considered. Linking of ETSs already exists between the California and Québec Cap-and-Trade programs and between the EU ETS and the Swiss ETS. New linking agreements could be underway. In March and September 2024, joint statements from the governments of Washington, California and Québec affirmed their commitment to explore potential linkage (ICAP, 2025[2]). On 19 May 2025, the EU and the UK agreed to negotiate the linkage of their ETSs (Tax Notes, 2025[19]). Linking could induce a convergence in carbon prices across the linked ETSs (Verde et al., 2022[20]). In practice, the linking of ETSs raises issues of interoperability of systems on many dimensions – e.g. on the monitoring, reporting and verification systems that underly them (OECD, 2025[21]) as well as on their carbon leakage prevention measures (Verde et al., 2022[20]) or compliance options (Galdi et al., 2022[22]).
The use of carbon pricing revenues for climate change mitigation, consumer and businesses protection, and technological innovation is increasing (ICAP, 2025[2]). The targeted use of auction revenues is a component of ETS policy in many jurisdictions, as can be seen in the EU, various US States, Canada, Alberta and Québec, New Zealand or Korea (Cárdenas Monar, 2024[23]) and is common in new systems. For instance, the establishment of the EU’s Social Climate Fund is meant to complement the new EU ETS23 by pooling revenues from the auctioning of allowances from the ETS2 as well as 50 million allowances from the existing EU ETS to support the most vulnerable groups (European Commission, 2025[24]). Similar to the California Cap-and-Trade program, the Washington Cap-and-Invest program requires some consignment of the allowances distributed to certain electric utilities and to natural gas (NG) suppliers: the entities are required to consign a share (in 2023, 100% for investor-owned electric utilities and 65% for NG suppliers in California, and 65% for both in Washington) of their free allowances to auctioning and use the proceeds for ratepayer benefit or for GHG emissions reductions (California Air Resources Board, n.d.[25]; State of Washington Department of Ecology, n.d.[26]). Many carbon taxes also come with earmarking of revenues, e.g. in Colombia, Japan, Mexican States or Switzerland (Cárdenas Monar, 2024[23]; Marten and van Dender, 2019[27]).
3.1.3. Related policy developments
Countries are increasingly exploring strategies to address carbon leakage, including through Border Carbon Adjustments (BCAs) (OECD, 2025[21]). Carbon leakage occurs when foreign emissions increase because of the introduction or intensification of domestic climate mitigation policies (OECD/Climate Club, 2024[28]). Examples of measures aimed at directly or indirectly responding to this risk include the Australian Guarantee of Origin (GO) Scheme as well as the EU and the UK Carbon Border Adjustment Mechanisms (CBAM). The Australian Guarantee of Origin (GO) Scheme (Australian Government DCCEEW, 2025[29]) tracks and verifies emissions and other attributes across the value chain of Australian clean energy products. It is adopted on a voluntary basis and aims at increasing transparency for consumers. The EU (resp. the UK) CBAM is a mechanism designed to price carbon emissions embedded in selected carbon-intensive goods imported into the EU (resp. the UK), based on the difference between the carbon price paid in the country of origin and the price of EU ETS (resp. UK) allowances. The EU CBAM is currently in its transitional phase, which started in 2023, and is meant to enter its definitive phase in 2026 (European Commission, 2025[30]) and the UK CBAM is meant to start in 2027 (HM Treasury, 2025[31]) with no transitional phase foreseen. The Norwegian government has advocated introducing CBAM in Norway from 2027 (Ministry of Climate and Environment and Ministry of Finance, 2025[32]). The introduction of these CBAMs goes hand in hand with the decrease of free allowance shares in the respective ETSs (section 3.1.2).
Several countries are pursuing co-operation under Article 6 of the Paris Agreement, following recent outcomes from UNFCCC negotiations on international carbon trading. Article 6 provides a framework for countries to use international carbon trading to achieve their NDCs (Wetterberg, Ellis and Schneider, 2024[33]). Article 6.2 provides a flexible framework for bilateral carbon trading, with limited multilateral oversight, while Article 6.4 establishes a UN-supervised mechanism for generating carbon credits – the Paris Agreement Crediting Mechanism (PACM) (Figure 3.1). At the 29th UN Climate Change Conference in Baku in 2024, Parties adopted key decisions for market-based co-operation under both Articles 6.2 and 6.4 to become operational (UNFCCC, 2024[34]; Clyde&Co, 2024[35]).4 International market-based co-operation could, for example, allow a developed country to support GHG mitigation in a developing country, and account for some of the mitigation outcomes towards its own climate goals (so called internationally transferred mitigation outcomes, or ITMOs). Countries can use carbon pricing instruments to obtain ITMOs, by allowing entities covered by a carbon price to purchase ITMOs and use these for compliance. Currently, ITMOs can be used towards Singapore’s carbon tax and Korea’s ETS. With the adoption of Article 6 rules in Baku, both developed and developing countries have signalled interest in international carbon trading. For example, the European Commission has proposed that ITMOs could make a limited contribution towards the EU’s climate target for 2040 (European Commission (press corner), 2025[13]).
Note: Both Article 6.2 and 6.4 enable public and private entities to generate credits that can be also used for compliance with NDCs or other international mitigation purposes.
Source: Figure based on text drawing from Doda et al. (2025[36]),Johnstone (2024[37]) and Granziera, Hamrick Malvar and Verdieck (2024[38]).
In 2024 and 2025, several new ETSs and carbon taxes were introduced, the scope of some existing instruments broadened, and the rates of certain carbon taxes increased, while some instruments were also put on hold or canceled (Box 3.1). Three subnational ETSs were introduced and several expansions in scope took place in existing ETSs, through their extension to new sectors or through the decrease in the inclusion threshold. Carbon taxes were introduced in 2024 and 2025 or are being planned for 2025. Carbon tax rate increases took place in a number of countries. One ETS and a few carbon taxes have been cancelled or put on hold.
A move away from temporary fuel tax relief offered during the energy crisis towards higher fuel excise tax rates was also observed in 2024 (OECD, 2025[10]). While in 2022 and 2023 several temporary cuts to excise taxes were introduced on road transport fuels (OECD, 2023[39]) and residential electricity consumption to alleviate cost-of-living pressures (OECD, 2024[40]), fuel excise tax rates have started to rise again in 2024. Some countries have scheduled a predetermined upward trajectory over the coming years, e.g. in Latvia, Lithuania and New Zealand. Some countries have reduced fuel excise taxes in 2025 (OECD, 2025[10]).
Three subnational ETSs were introduced – two in the United States and one in Canada:
- the British Columbia Output-Based Pricing System (B.C. OBPS) began in April 2024, replacing the CleanBC Industrial Incentive Program (CIIP) (ICAP, 2025[2]);
- the Colorado Greenhouse Gas Emissions and Energy Management for Manufacturing Regulation in 2024 (Colorado Department of Public Health & Environment, 2025[41]);
- the Oregon Climate Protection Program (CPP) in 2025 (Oregon DEQ, n.d.[42]).
Several extensions in scope took place in existing ETSs, including:
- in early 2025, the Chinese national ETS went from solely covering the power sector to also including the cement, iron and steel and aluminium smelting sectors (China Ministry of Ecology and Environment, 2025[43]) – this extension retroactively applies in 2024 (though effectively only through reporting obligations in 2024);
- in 2024, the EU ETS extended its scope to include international maritime emissions (European Commission, 2024[44]) and emissions from most flights to and from the EU’s nine outermost regions as well as from departing flights from these regions to Switzerland and the UK;
- in 2024, Germany’s national ETS expanded to include waste incineration (DEHSt, 2025[45]);
- in 2024, the Indonesian ETS’s inclusion threshold was lowered from a production capacity for coal-fired power generation plants connected to the Perusahaan Listrik Negara (PLN) grid exceeding 100 MW to 25 MW. Coverage could expand in 2025 to include more types of power plants (ICAP, 2025[2]).
Carbon taxes were introduced (2024, 2025) or are being planned for 2025:
- the Indonesian carbon tax, complementing the Indonesian ETS is expected in 2025 (ICAP, 2025[2]);
- Israel introduced a fuel-based carbon tax in 2024;
- Lithuania plans the introduction of a carbon tax on fuels in 2025 (OECD, 2025[46]);
- Mexico introduced four new carbon taxes at the subnational level: in San Luis Potosí in 2024 and in Colima, Mexico City and Morelos in 2025 (World Bank Carbon Pricing Dashboard, 2025[47]).
Carbon tax rate increases took place in a number of countries, including:
- Denmark is strengthening its carbon tax on industry from 2025 by adding a new carbon tax to apply to EU ETS-covered installations. It has also planned to increase its existing carbon tax rate on fuels by 400%;1
- in 2025, Iceland raised its carbon tax rate by 59% (OECD, 2025[10]);
- in Ireland the carbon tax rate on natural gas and solid fuels is legislated to increase from EUR 56 to EUR 63.50/tCO2 in May 2025 (Houses of the Oireachtas, 2025[48]);
- in Norway, carbon taxes on emissions from non-ETS sectors and the offshore petroleum industry increased by 16% (OECD, 2025[10]);
- in Slovenia the headline carbon tax rate rose from EUR 17.3 to EUR 30.85/tCO2 in September 2024 (OECD, 2025[49]);
- following its pre-determined trajectory, the carbon tax rate in South Africa increased from ZAR 159 to ZAR 190 in 2024 and ZAR 236/tCO2e in 2025 (National Treasury Republic of South Africa, 2024[50]);
One ETS and a few carbon taxes have been cancelled or put on hold in Canada and the Dutch Parliament voted to abolish Netherland’s national CO2 levy:
- In April 2025, Saskatchewan's Output-Based Performance Standards program was paused2 and the British Columbia government cancelled the carbon tax3 by introducing legislation to drop the rate to CAD 0. The Northwest Territories took steps to effectively remove its territorial carbon tax on most users as of April 2025.4 In Canada, the government has made regulations that cease the application of the federal fuel charge effective 1 April 2025 and introduced legislation in June 2025 which would formally remove the federal fuel charge (Department of Finance Canada, 2025[51]) (Parliament of Canada, 2025).
- In June 2025, a majority of the Dutch Parliament voted in favour of a motion to abolish the national CO2 levy (Carbon Pulse, 2025[52]).
Notes: Introductions and changes presented amongst the 79 countries covered in the report.
1. “Danish Parliament introduces CO2 tax on fuels and CO2-emission tax on industry from 2025” (6 August 2024), https://www.ey.com/en_gl/technical/tax-alerts/danish-parliament-introduces-co2-tax-on-fuels-and-co2-emission-tax-on-industry-from-2025, as accessed on 22/06/2025.
2. “Saskatchewan is the First Province in Canada to be Carbon Tax Free” (27 March 2025), https://www.saskatchewan.ca/government/news-and-media/2025/march/27/saskatchewan-is-the-first-province-in-canada-to-be-carbon-tax-free, as accessed on 22 June 2025.
3. “B.C. eliminates carbon tax” (31 March 2025), https://news.gov.bc.ca/releases/2025FIN0014-000280, as accessed on 22 June 2025.
4. https://www.gov.nt.ca/en/newsroom/gnwt-ending-nwt-carbon-tax-most-users-april-1, as accessed on 23 October 2025.
While ETS reforms generally directly translate into changes in Effective Carbon Rates, carbon tax reforms (e.g. their introduction or a change in rate) should generally be considered simultaneously with fuel excise tax changes to understand their impact on Effective Carbon Rates. Indeed, reforms in carbon taxes are often accompanied by simultaneous changes in fuel excise tax rates, especially in the cases where the carbon taxes are fuel-based (i.e. in a majority of cases). For instance, in Slovenia, the increase in the headline carbon tax rate in 2024 came along with a decrease in fuel excise tax rates.5 In Denmark, the planned reform to increase the existing carbon tax rate on fuels by 400% would also include cutting the existing excise duty on fuels in half.6 In France, when the carbon component was introduced to fuel excise taxes in 2014, it initially did not affect the total rate7 (i.e. fuel excise tax rates decreased) – in subsequent years, when the carbon component rate increased the total tax rate did however increase. Hence, the estimates below only consider the impact of the main ETS changes in permit prices up until June 2025 and expected main changes in coverage (those listed in Box 3.1).
Over the 2023-2025 period, prices (expressed in constant 2023 EUR/tCO2) have increased in about half of ETSs (Figure 3.2). There are three cases where permit prices follow a pre-determined increasing price path: in all Canadian systems other than Québec, in Austria and in Germany. In Canada, the price went from CAD 65 in 2023 to 80 in 2024 to 95/tCO2e in 2025. In Austria and Germany, it went from EUR 32.5 (resp. 30) in 2023 to 45 in 2024 to 55/tCO2 in 2025. However, due to inflation, this does not necessarily imply increased permit prices when expressed in constant 2023 EUR/tCO2. In the rest, year-on-year changes in average permit prices were positive in less than half of the systems for which information is available. Overall, when accounting for inflation and exchange rates, the average permit price across all ETSs in place in 2023 was stable, from 20.2 in 2023 to 20.7 in 2025, all in 2023 EUR/tCO2 (Table 3.1).
In 2023 EUR/tCO2e.
Note: Permit prices from the primary market when available, else from the secondary market (see Annex B for more detail on permit price sources). Permit prices do not account for free allocation. Data are sorted by country and system alphabetical order, with supranational systems appearing last.
79 countries
Note: Permit prices and tax rates were converted into (constant) 2023 EUR using the latest available OECD exchange rate and inflation data. The share of emissions covered are all calculated with respect to the same GHG emissions base (that for 2023 used in this report).
Between 2023 and 2025, ETS coverage has increased most in industry. For the Chinese national ETS, newly covered industrial facilities received free allowances equal to their verified emissions in 2024 (ICAP, 2025[3]), so for 2024 the extension is modelled as a reporting obligation with no carbon pricing coverage. From 2025, free allowances were allocated based on output-based benchmarking (hence providing a marginal incentive to reduce emissions), so it is assumed that the aluminium, cement and iron and steel sectors started being priced in 2025 by the Chinese national ETS, potentially inducing a change in coverage of CO2 emissions from energy use in industry from 15% to 37%. This change, combined with the extension of the EU ETS to cover maritime emissions (both domestic and international), could induce a change in coverage by ETSs of domestic GHG emissions in the 79 countries studied in this report from 22% to 29%. International maritime emissions could see their coverage by ETS pricing increase by 8 percentage points.
International maritime emissions and 79 countries’ territorial emissions
Note: Modelling based on changes in coverage of the Chinese national ETS and the EU ETS, keeping the GHG emissions base constant. Agri. & Fish.: agriculture and fisheries.
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← 1. Carbon Removals and Carbon Farming (CRCF) Regulation (EU/2024/3012).
← 2. The revision of the Swiss CO2 Act partially provides the legal framework for this gradual phase-out (Swiss Federal Authorities, 2025[53]).
← 3. The EU ETS2 will cover buildings, road transport and additional sectors and is to become fully operational in become fully operational in 2027 (European Commission, n.d.[54]).
← 4. Parties also adopted decisions related to non-market-based co-operation under Article 6.8, which are not further discussed in this paper.
← 5. “Povišanje okoljske dajatve za fosilna goriva” (10 September 2024), https://www.energetika-portal.si/nc/novica/n/povisanje-okoljske-dajatve-za-fosilna-goriva/, as accessed on 8/04/2025.
← 6. “Danish Parliament introduces CO2 tax on fuels and CO2-emission tax on industry from 2025” (6 August 2024), https://www.ey.com/en_gl/technical/tax-alerts/danish-parliament-introduces-co2-tax-on-fuels-and-co2-emission-tax-on-industry-from-2025, as accessed on 22/06/2025.
← 7. “Fiscalité carbone” (21 September 2017), https://www.ecologie.gouv.fr/politiques-publiques/fiscalite-carbone, as accessed on 22/06/2025.