As the world gets closer to mid-century climate deadlines, carbon markets are stepping onto the global stage at an unprecedented scale. These programs are maturing from a series of fragmented projects into an interconnected ecosystem of policies that are guiding the world toward a low-carbon future. According to the World Bank’s State and Trends of Carbon Pricing 2024, there are now over 75 carbon pricing instruments in operation worldwide, covering approximately 24% of global GHG emissions, up from around 15% just five years ago. The total value of these initiatives exceeded USD $104 billion in 2024. Carbon pricing is a pillar of international climate policy, providing a powerful incentive for emission reductions and green technology investments in the private sector, while unlocking key funding for a diverse array of climate programs and initiatives.

Expansion of Industries and Regions

One of the most interesting developments over the last decade is how carbon markets have expanded across industries that were once considered challenging to decarbonize. While power generation and heavy industry have been core targets of Emissions Trading Systems, policy frameworks are extending to sectors like maritime, aviation, buildings, and road transport. The EU ETS, administered by the European Commission’s Directorate-General for Climate Action (DG CLIMA), is a great example of this evolution. The ETS was created in 2005 as the world’s first major carbon market and it originally focused on power and industrial emissions. Over time, the EU ETS has been strengthened and broadened. By January 2024, it included maritime transport and has actively explored ways to integrate emissions from road transport and buildings. This would be done through a separate but similar market system, ETS II. Throughout the year, EU allowance prices have traded above EUR 70 per ton. This rising price trajectory, compared to prices six years ago which were just breaking into double digit figures,  and ongoing policy refinements show that the EU’s approach is not only about emissions reductions for those under compliance, but also about driving innovation in cleaner fuels, efficiency measures, and emerging technologies.

In the Asia-Pacific (APAC) region, carbon markets are evolving very quickly, and there is an interesting interplay between rapid economic growth, climate commitments, and more investor interest in sustainable industries. China’s national ETS, which is overseen by the Ministry of Ecology and Environment, is now the world’s largest by volume, initially covering over five billion tons of CO2 from the power sector. This October, China expanded its coverage to include high-emitting industries like cement and steel, moving towards a more comprehensive system. Although Chinese carbon allowances have remained modestly priced at around CNY 103 per ton (USD 14-15), it is likely that prices will increase as caps tighten.

South Korea, guided by its Ministry of Environment, has built on its pioneering role as Asia’s first nationwide ETS. Prices in the Korean ETS, hovering around KRW 7,020 (USD 5.38) in July of 2024, showcases a well established market that has gained the trust of participants and covers 89% of South Korea’s national GHG emissions. Meanwhile, Southeast Asian countries such as Indonesia and Vietnam are piloting ETS phases, with Indonesia launching a carbon exchange in 2023 and Vietnam preparing a pilot program by 2025 to align with their Paris Agreement commitments. New Zealand’s ETS, managed by the Ministry for the Environment, stands as a model of stability in the region as well. Since its beginning in 2008, it has had rising prices  of NZD 50–60 (USD 30–35) per ton and comprehensive offset provisions that encourage both technological and nature-based solutions such as afforestation and reforestation to enhance carbon sequestration, as well as Carbon Capture and Storage initiatives.

In Latin America (LATAM), carbon markets are advancing as countries refine existing pricing instruments and explore new ones. Mexico, under the leadership of its Secretaría de Medio Ambiente y Recursos Naturales, completed its three-year ETS pilot phase in 2023 and entered a full compliance period in 2024. Although allowance prices remain relatively low, the focus for Mexico now is on strengthening emissions caps and creating a stable environment for future price increases and compliance as a whole. Key steps taken include enhancing transparency in allowance allocation and reporting processes, and improving monitoring, reporting, and verification frameworks to build trust among market participants. Chile, an early adopter of a carbon tax in 2014, is also exploring an ETS to complement it and drive deeper emissions reductions. Moreover, Colombia continues to allow offset use of carbon offsets to help meet its greenhouse gas reduction commitments, encouraging domestic forestry, agriculture, and other land use projects that deliver benefits like biodiversity conservation and support for rural livelihoods. It has made strides in developing its ETS since the passage of the National Climate Change Law in 2018, including integrating offsets and designing emissions caps, with a pilot phase from 2019 to 2020. However, full implementation is still underway as the country refines its framework to align with climate goals.

LATAM also plays a significant role in the global voluntary carbon market, particularly through the supply of high quality nature-based credits such as those generated from REDD+ initiatives. These credits not only help businesses meet voluntary sustainability targets but also bring finance into ecosystem restoration and community development. As policymakers explore integrating nature-based solutions into compliance regimes, which is encouraged by emerging frameworks under Article 6 of the Paris Agreement, LATAM’s leadership in this arena could position it as a vital source of credible reductions and removals. Brazil’s new ETS, known as the Sistema Brasileiro de Comércio de Emissões (SBCE), was approved under Law N 15.042 on December 12th, 2024, and has been a major evolution in the country’s climate policy. The SBCE pledges to target companies emitting over 10,000 metric tons of CO2 annually, requiring them to report GHG emissions. Those exceeding 25,000 metric tons must adhere to emissions caps or obtain eligible credits. What sets the SBCE apart here is its integration of nature based solutions such as REDD+ forest conservation, which creatively blends voluntary and regulated markets.

The Middle East (MENA) presents a more cautious approach to carbon markets. Long reliant on hydrocarbons, countries like the UAE and Saudi Arabia are recognizing the potential of carbon pricing as part of their economic diversification. With guidance from environment ministries and sovereign wealth funds such as the Saudi Public Investment Fund, these nations have hosted voluntary credit auctions since 2023 and have drawn immense international interest achieving auction prices around USD 20–25 per ton. In 2023, the Regional Voluntary Carbon Market Company announced the successful auction of more than 2.2 million metric tons of carbon credits at the largest ever voluntary carbon credit auction. Although still nascent, these developments show a growing readiness to integrate carbon markets into broader strategies aimed at sustainable development and placing MENA on the scene as an environmental player. Hosting global climate summits like the UAE’s COP28 intensifies the region’s spotlight even further.

Predictions for Future Growth

Looking ahead, several key trends are likely to define carbon markets and how they evolve through the remainder of the decade and beyond. One major development will be the increased linkage of ETSs and cross-border collaboration. The existing connection between the EU and Switzerland’s ETSs demonstrates the benefits of linking, such as enhanced liquidity and shared practices. The United Kingdom is evaluating potential linkages of its post-Brexit UK ETS with other systems such as the EU ETS in order to improve market stability. Colombia, Chile, Mexico, and Brazil are advancing carbon pricing mechanisms, and through this are creating the potential for regional market linkages in LATAM. This type of integration could enhance market liquidity and reduce compliance costs, however challenges like regulatory alignment and political coordination need to be addressed in this region to realize these linkages. Discussions in the APAC region could eventually pave the way for interconnected carbon markets, enabling countries to exchange credits that meet uniform standards in the same region. As Article 6 mechanisms under the Paris Agreement progress, Internationally Transferred Mitigation Outcomes may facilitate a truly global trading system, ensuring reductions happen wherever they are most cost-effective and environmentally sound.

Another area of opportunity is the integration of emerging technologies and nature-based solutions. Many markets are exploring ways to include carbon removal options such as Direct Air Capture and innovative agricultural practices into compliance frameworks. As Measurement, Reporting, and Verification protocols grow more stringent and as confidence in the environmental integrity of offsets strengthens, carbon markets may reward a breadth of innovative mitigation strategies. This could encourage investors to increasingly diversify their low-carbon portfolios and support the research and commercialization of new climate solutions. With sectoral initiatives like the International Civil Aviation Organization’s CORSIA scheme for aviation and growing interest in maritime decarbonization, carbon pricing will increasingly shape industries once viewed as difficult to regulate, and incentivize them towards cleaner fuels and long-term innovation.

A Global Carbon Market

From the world standard EU ETS to China’s evolving national system, and LATAM’s nature-based credits to the MENA’s emerging voluntary platforms, carbon markets are much more than isolated policy ventures. They are integral pieces of international climate architecture and provide a venue to foster cross-border collaboration in efforts to reduce global carbon emissions. As carbon market systems spread across multitudes of sectors and regions, we are coming closer to a cohesive global carbon marketplace. The optimism and increased participation surrounding carbon markets in 2024 is truly a testament to this. Through forging stronger connections,  integrating natural and technological solutions, and by committing to continuous changes, carbon markets are poised to become even more transformative tools on the international journey to net-zero emissions. Their importance lies not only in their ability to reduce emissions but also in addressing the global nature of climate change, which is an issue that knows no borders.