Global climate action has entered a decisive decade. In 2024, average global warming exceeded 1.5° Celsius above preindustrial levels, a threshold long viewed as a warning sign for accelerating climate risks. The impacts on human welfare are already evident, from more frequent extreme weather to growing economic and social disruption. Without much faster progress on emissions reductions, these effects will intensify, making it increasingly difficult to limit eventual warming to well below 2°C.
Against this backdrop, carbon pricing and markets are gaining renewed attention as essential tools for achieving cost-effective global emissions reductions. Carbon Pricing and Markets: Enabling Efficient Emission Reductions, a recent report from the Group of Thirty, published with support from Oliver Wyman, highlights why these mechanisms — while imperfect and unevenly applied today — remain central to any credible pathway to net-zero emissions.
Carbon pricing — what works and what needs to change
Carbon pricing boosts efforts to reduce greenhouse gas emissions by putting a clear cost on emissions, encouraging companies and consumers to cut where it is cheapest and most efficient. In theory, globally coordinated carbon prices would be one of the most powerful ways to drive rapid decarbonization. In practice, however, carbon pricing has developed unevenly.
While some countries have implemented carbon taxes or emissions trading schemes, others rely on alternative policy tools or have yet to introduce meaningful pricing. As a result, carbon pricing and international carbon trading have not reached the scale once expected.
Climate agreements, on the other hand, have largely focused on national emissions-reduction commitments, using different approaches across different jurisdictions. But they have rarely proposed or supported carbon pricing and market frameworks. Thus, while regulation, standards, and public investment play an important role, overall progress on cutting emissions remains far short of what is needed to meet global climate goals. That is, in large part, because efforts have not provided the economic incentive that a price on carbon would.
Hard-to-abate sectors and the role of carbon pricing today
One area where carbon pricing is especially critical is in hard-to-abate sectors of the economy. These include long-distance transport, such as shipping and aviation, and heavy industry, including steel, cement, and chemicals. Emissions in these sectors are technically challenging and often expensive to reduce, and many of their products are extensively traded across borders.
The report underscores the need for carbon pricing to drive decarbonization in these sectors by putting a price tag on a failure to cut. Clear and predictable price signals can accelerate investment in low-carbon technologies and processes that would otherwise struggle to compete with established, emissions-intensive alternatives.
Why carbon border adjustment mechanisms matter for hard to abate industries
Ideally, carbon prices would be aligned across countries to avoid competitive distortions and carbon leakage. However, where international coordination proves difficult, carbon border adjustment mechanisms (CBAMs) are emerging as an important policy tool.
CBAMs, similar to the one implemented by the European Union, apply a carbon cost to imported goods based on their emissions intensity, helping to extend incentives to decarbonize across global supply chains. CBAMs are not a substitute for global coordination, but they can encourage wider adoption of carbon pricing and reduce the risk that early movers are disadvantaged. They should be regarded as part of a broader toolkit to help abate emissions across supply chains, especially in hard-to-abate industries.
The report also highlights the importance of ensuring that revenues from carbon pricing and CBAMs support climate mitigation, adaptation, and resilience, particularly in lower-income countries that are most vulnerable to climate impacts.
The growing role of carbon markets and removals
Even with rapid emissions reductions, meeting global net-zero targets will require removing carbon dioxide from the atmosphere. Carbon dioxide removal (CDR) is therefore a critical complement to decarbonization.
Carbon credit markets are expected to play a key role in mobilizing private investment into both emissions reduction projects and CDR technologies. The report emphasizes that while certain categories of reduction credits can support early progress, companies should increasingly shift toward removal-based credits over time, eventually relying on removals entirely.
To make this work, a high level of integrity across carbon markets is essential, with strong standards, transparent monitoring, and credible verification to ensure environmental impact. Including carbon dioxide removals within compliance schemes can further support market scale-up, while clearer policy guidance can help sectors such as technology, financial services, and professional services play a larger role in financing climate solutions.
Carbon pricing and carbon markets are not standalone solutions, but they are indispensable components of an effective climate strategy. When combined with international coordination, targeted policy support, and strong market integrity, they can unlock faster, more efficient, and more equitable emissions reductions. As global warming continues to rise, the case for strengthening these tools has never been more urgent.