Understand carbon tax & Emissions Trading Systems (ETS)

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Companies should be aware that carbon pricing initiatives are a highly effective strategy for governments to close the gap between climate targets and implementation. Carbon pricing reduces both the carbon intensity of energy supply and overall energy demand through a clear price signal.

There were 64 carbon pricing initiatives in place in 2021, half of which are carbon taxes and half of which are emissions trading schemes.

  • A carbon tax puts a price on the emission of one tCO2e. The report of the High-Level Commission on Carbon Pricing identified a range of 50-100 USD/tCO2e (or "carbon price corridor") as the price needed by 2030 to keep global warming below 2°C as part of a comprehensive climate policy package.  In 2021, a survey of 30 climate economists (Reuters) estimated that the carbon price should be at least 100 USD/tCO2e or higher and needed immediately to incentivise net-zero emissions by 2050.
  • Emissions trading systems (ETSs) allocate allowances to covered sectors on an annual basis through a 'cap and trade' system, which diminish over time. They therefore represent a right to emit. Some of these rights can be traded between parties through carbon markets. In Europe, recent EU ETS price increases have coincided with several significant policy changes and proposals, rising from €4/tCO2e in 2015 to €96/tCO2e in 2021.

Carbon border adjustment mechanisms are also emerging to ensure competitiveness in countries with high carbon taxes and to avoid the risk of emissions being shifted from one location to another (known as carbon leakage).

50-80 SGD / tCO2e

is the expected Singapore's carbon tax by 2030
(NEA)

185 SGD / tCO2e

was Switzerland's automatically adjusted carbon tax rate in 2021 due to missed interim GHG targets
(openknowledge)