CURRENT AFFAIRS
CURRENT AFFAIRS
Description
Countries across the globe are increasingly embracing carbon pricing as a strategy to combat greenhouse gas (GHG) emissions. According to a recent World Bank report, nearly two-thirds of the world's Gross Domestic Product (GDP) now falls under the scope of carbon pricing initiatives. The number of active carbon pricing mechanisms has expanded significantly from just five in 2005 to 80 in 2025. Nations such as India, Brazil, and Türkiye are currently working to implement their own systems.
Understanding Carbon Pricing Mechanisms
Carbon pricing is designed to reflect the environmental costs of emissions by assigning a monetary value to the release of carbon dioxide (CO2). The objective is to encourage businesses and industries to adopt cleaner practices. There are three major types of carbon pricing approaches:
Emissions Trading Systems (ETS): These systems place a cap on total emissions and allow companies to buy or sell emission allowances. Firms that lower their emissions can profit by selling unused credits.
Carbon Taxes: A fixed fee is imposed on either direct emissions or the carbon content of fossil fuels. This financial pressure motivates firms to minimize emissions.
Carbon Credit Trading: Companies can acquire credits representing the reduction or removal of one tonne of CO2. These credits are generated from certified projects that offset emissions.
Economic Impact And Revenue Generation
Beyond environmental benefits, carbon pricing also presents a significant revenue opportunity. The World Bank estimates that 43 carbon tax schemes and 37 ETSs are currently in operation worldwide, collectively generating over $100 billion. These systems now cover around 28% of global emissions, with the power generation sector being the most regulated.
Sector-Wise Application Of Carbon Pricing
The reach of carbon pricing differs across industries. The power sector leads in coverage, followed by manufacturing, construction, transportation, mining, and aviation. However, areas like agriculture and waste management remain largely outside the carbon pricing framework, signaling room for future expansion.
Carbon Credit Markets And Private Investment
Carbon credit markets continue to grow, serving as a bridge between public policy and private finance. Investment is increasing in projects focused on emissions reduction or removal particularly those that are nature-based. In early 2024 alone, these projects attracted roughly $14 billion in funding. The regulated compliance market, where entities must meet emission caps, is the main driver behind this surge.
The Rise Of Voluntary Carbon Markets
Voluntary carbon markets, which operate outside government mandates, allow corporations and individuals to purchase credits to offset their carbon footprint. There's growing interest in nature-based solutions (like afforestation) and clean cooking initiatives. Moreover, engineered carbon removal technologies such as direct air capture are also gaining momentum, as more organizations commit to purchasing such credits in response to climate goals.
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