ETS Global Landscape

As of 2024, emissions trading systems cover roughly 18% of global greenhouse gas emissions across 36 jurisdictions. The EU ETS is the largest and oldest, but China's national ETS, launched in 2021, covers the most emissions by volume. No two systems work the same way, and the differences determine whether they actually reduce emissions or merely create the appearance of action.

The critical design variable is the carbon price, which ranges from under $5/tonne (China) to over $100/tonne (EU). Below roughly $30-40/tonne, most analyses find insufficient incentive to shift from coal to gas, let alone to drive industrial decarbonization. Above $80/tonne, significant fuel switching, efficiency investment, and process changes become economic. Most operating ETS systems price below the threshold where they meaningfully change behavior.

Four system archetypes. The EU ETS: tight cap, auctioned allowances, $60-100/tonne, proven emission reductions. China's national ETS: intensity-based benchmarks (not absolute caps), free allocation, $8-12/tonne, limited price signal. California-Quebec linked market: absolute cap, partial auction, $30-40/tonne, moderate incentive. South Korea's KETS: absolute cap, mostly free allocation, $10-20/tonne, early stage.

Why are most ETS carbon prices too low to drive meaningful decarbonization?

Political economy. Setting a cap tight enough to raise prices above $40/tonne imposes visible costs on industries and voters. Governments that push carbon prices too fast face industrial opposition and electoral backlash. The EU's price only crossed $50/tonne in 2021, sixteen years after the system launched, and only after multiple rounds of reform tightened the cap.

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