Key drivers for the global carbon market

he use of carbon markets has been identified as a key driver towards achieving global net-zero emissions. Over 140 countries, covering approximately 90% of global greenhouse gas (GHG) emissions, have announced or are considering net-zero targets. However, only around 6% of these countries have defined their targets in an acceptable way, and many are still debating the best paths forward. Carbon pricing should ultimately reflect the marginal cost of abatement, taking into account the pace of reduction required, the sources of emissions covered, and additional provisions such as free allocation of carbon credits and the use of carbon offsets.

Currently, carbon markets cover only around 37% of the emissions generated in the markets they regulate, with the power and industry sectors being the most frequently included. However, to achieve economy-wide decarbonization, other hard-to-abate sectors such as buildings and transport will also need to be included.

Following COP26, countries are expected to update their emission-reduction targets under the Paris Agreement to better align with their stated net-zero ambitions. Sector coverage is also expected to improve as mitigation efforts move beyond the power sector to other hard-to-abate sectors. Carbon pricing and the use of carbon markets will play a critical role in achieving global net-zero emissions, and it is important for countries to work together to establish effective and efficient carbon pricing mechanisms that reflect the true cost of carbon emissions.Regenerate response