The global expansion of carbon pricing initiatives

To limit global warming, the urgent transition away from fossil fuels is widely acknowledged. However, determining the most effective approach is complex

Economists have advocated for carbon pricing, a mechanism initially introduced by Europe in 2005. This system enables the market to pinpoint the most cost-effective way to reduce greenhouse gas emissions, thereby allowing society to combat climate change at the lowest possible expense.

Some, particularly certain American politicians, express concerns that such initiatives may lead to consumer resistance due to increased costs. In contrast, under President Joe Biden, the United States is channeling substantial funds towards nurturing eco-friendly supply chains.

Surprisingly, the rest of the world is now adopting a more European approach, with carbon pricing initiatives gaining traction in both affluent and developing nations. Take, for instance, Indonesia, the world’s ninth-largest emitter of greenhouse gases. Despite releasing 620 million tonnes of carbon dioxide equivalent annually, with nearly half of its surging energy consumption sourced from coal, the country is committed to environmentally conscious goals.

On September 26th, during the launch of its inaugural carbon market, President Joko Widodo highlighted its potential to become a pivotal hub for carbon trading. Local banks promptly acquired credits from a geothermal-energy company. Additionally, the country implemented a local emissions-trading scheme in February, mandating large coal-fired plants to obtain permits for emissions surpassing a specified threshold.