Carbon pricing revenues: their role in financing the climate transition
Last month, the Executive Secretary of the UNFCCC, Simon Stiell, stressed how important this and next year are for the achievement of the Paris Agreement and called for “a quantum leap in climate finance” ahead of the Spring Meetings of the World Bank Group and International Monetary Fund. Indeed, with emissions required to peak before 2025, our window of opportunity is rapidly closing to keep 1.5°C within reach. More and better finance is urgently needed.
Carbon pricing policies and their revenues are part of the tools available that can help fill the climate finance gap.
Revenues from carbon taxes and emission trading systems (ETSs) have almost tripled since 2015, and the upward trend could continue in the medium-term, raising questions on how they are and should be used in the future. To fill this knowledge gap and inform policy makers and practitioners on the lessons learned and ways forward on the use of carbon revenues, we reviewed experiences on carbon revenue use of 16 carbon taxes and 14 ETS that together make 94% of global carbon revenues.
Our study sheds light on the chain of decisions policy makers are confronted with to maximise benefits of carbon pricing through carbon revenue use. Several challenges are yet to be overcome related to transparency, accountability, and effective communication. But there are also good news. In 2022, over half of carbon revenues raised in selected jurisdictions had been used for climate and nature, and there is potential in key milestones of the international climate negotiations –notably the new climate finance goal at COP 29 and the revised national climate commitments at COP 30– for them to integrate a broader discussion on how to finance climate and development strategies, as part of financing plans for the transition.
