Carbon pricing mechanisms

Current status of implementation and existing gaps

In the gradual phase-out of economic supportive measures to heavy-duty vehicle segments, sufficient carbon pricing measures play a pivotal role in enabling a level playing field and accelerating the shift to zero-emission vehicles.

Examples and initiatives

Germany’s revamped tolling (Eurovignette) started in 2023. Trucks pay a CO₂ surcharge (EUR 200/tCO₂); zero-emission trucks fall in the lowest emission class, incurring no surcharge.

Current status of implementation and existing gaps

Net-zero fuel alternatives currently come at a considerable premium in cost. For example, the cost of e-methanol and e-ammonia is two and six times higher than that of heavy fuel oil, the traditional fuel used in shipping (DNV, 2024). Carbon pricing will be a key policy option in narrowing the cost gap and/or funding the deployment of clean infrastructure.

Examples and initiatives

Linked with the IMO’s Greenhouse Gas Fuel Intensity (GFI is a two-tier carbon price for ships that emit beyond the emission’s threshold (IMO, 2025). Additionally, the EU Emissions Trading System now includes maritime emissions from ships with gross tonnage of 5000 and above. The new system will cover 50% of emissions from the trips initiating or ending on EU ports and 100% of the emissions of the trips within EU.

Current status of implementation and existing gaps

Net-zero fuel alternatives for aviation currently come at a considerable premium in cost. Carbon pricing will be a key policy option in narrowing the cost gap and/or funding the deployment of clean infrastructure.

Examples and initiatives

Emissions from flights departing or arriving at an airport within the European Economic Area have been included in the EU Emissions Trading System since 2012 ¹ . Airline operators are expected to monitor and verify their annual emissions and “surrender” an equivalent number of emissions allowances accordingly. To ease transition into the carbon market, the EU initially provided free allowances, which allowed airlines to emit certain amount of CO₂ without paying for it. However, in 2022, the EU also agreed to phase out free allowances by 2026 (EC, 2022).

While not a carbon pricing mechanism, CORSIA is a global market-based mechanism that applies to the aviation sector and requires airline operators to report and offset their CO₂ emissions. As of March 2025, 129 ICAO member states are participating in the scheme’s first phase.

Current status of implementation and existing gaps

In addition to CO₂ reduction commitments, policy developments like carbon pricing mechanisms – including the EU Emissions Trading System, the EU Carbon Border Adjustment Mechanism, and carbon taxes – are supporting the iron and steel industry’s shift to net zero. With 110 instruments across 93 jurisdictions, carbon prices range from USD 0.46/tCO₂ in Indonesia to USD 167/tCO₂ in Uruguay (World Bank Group, 2025a).

Given the diverse carbon prices in various regions and different sector considerations, the World Trade Organization has launched a task force exploring an international approach to carbon pricing at the global level. A robust carbon price can incentivise the transition to less carbon-intensive steelmaking.

Examples and initiatives

In Canada, currently, the emissions trading system includes steel and cement (with free allocations) and carbon border adjustment mechanisms are under consideration (ITA, 2024).

In China, starting in 2025, the emissions trading system will include steel, cement and aluminium in addition to the power sector (ICAP, 2025).

The EU Emissions Trading System is implemented together with the Carbon Border Adjustment Mechanism (currently in the transition phase; comes into effect from 2026), and free allocations to steel sector will phase out by 2034 (ITA, 2024).

A carbon market is under development in India that will have a compliance and voluntary offset mechanism. It is expected to include steel and will be launched in 2026.

Current status of implementation and existing gaps

In addition to CO2 reduction commitments, policy developments like carbon pricing mechanisms – including the EU Emissions Trading System, the EU Carbon Border Adjustment Mechanism, and carbon taxes – are supporting the chemical and petrochemical sector’s shift to net zero. With 110 instruments across 93 jurisdictions, carbon prices range from USD 0.46/tCO2 in Indonesia to USD 167/tCO2 in Uruguay (World Bank Group, 2025a).

Given the diverse carbon prices in various regions and different sector considerations, the World Trade Organization has launched a task force exploring an international approach to carbon pricing at the global level. A robust carbon price can incentivize the transition to a less carbon-intensive chemical and petrochemical industry.

Examples and initiatives

The EU Emissions Trading System is a cap-and-trade mechanism that includes the chemical sector, among other industries, such as iron and steel, and cement.

Current status of implementation and existing gaps

Alongside commitments to reduce CO₂ emissions, policy and regulatory developments are enabling the cement industry’s initial net-zero transition. Over 110 carbon pricing instruments are now active across 53 national and 40 subnational jurisdictions, though prices vary widely, from just USD 0.46/tCO₂ in Indonesia’s emission trading system to USD 167/tCO₂ in Uruguay’s carbon tax system (World Bank Group, 2025a). The EU Emission Trading System price has more than doubled since 2019. Given this diversity, the World Trade Organization has launched a task force to explore a global approach to carbon pricing. As cement is widely traded, robust policy paired with mechanisms like a carbon border adjustment mechanism or free allocations is needed to maintain competitiveness (ITA, 2024).

Examples and initiatives

In Canada, the emission trading system currently includes cement (with free allocations) and carbon border adjustment mechanisms are under consideration (ITA, 2024).

In China, starting in 2025, the emission trading system will include steel, cement and aluminium, in addition to the power sector (ICAP, 2025).

India is in the process of creating a carbon market (2026 onwards), which will include key industries like aluminium, cement and steel (ITA, 2024).

The Republic of Korea includes cement and steel in its emission trading system. Free allocations also apply (ITA, 2024).