Toward a global carbon pricing system

Fragmented carbon markets and the risk of carbon leakage are jeopardizing progress toward global net-zero targets. A major challenge lies in the lack of coordinated policies to align around a unified carbon price. Oxford Economics, in a study for the Hinrich Foundation, highlights how regional carbon markets could offer a practical path toward more effective global pricing.

Fragmented carbon markets and inconsistent climate policies are threatening global efforts to reach net-zero emissions by 2050. One of the key challenges lies in the absence of coordinated mechanisms to establish a unified global carbon price. This lack of coherence has contributed to carbon leakage and inefficiencies that undermine the effectiveness of current market-based climate solutions.

The recent entry into force of EU’s Carbon Border Adjustment Mechanism (CBAM) is a bold step in addressing “carbon leakage”. Notably, it has led to other countries adopting carbon pricing regimes and their own BCAs. Whilst being an effective “stick” to force climate actions, these BCAs are not sufficient to create sustainable progress.

In this special feature for the Hinrich Foundation, Oxford Economics explores how solely relying on border carbon adjustment (BCA) measures to drive carbon pricing momentum is set to face challenges, and why regional carbon markets may offer a more viable path toward global carbon pricing. To this end, developed and developing countries, as well as the private sector each has a distinct yet important role to play.