Carbon pricing continues to evolve as a cornerstone of global climate strategy. In 2025, governments have sharpened their focus on how market-based mechanisms, such as carbon taxes and emissions trading systems (ETSs), can reduce emissions while supporting fiscal stability and industrial competitiveness. For businesses in high-emission sectors like automotive, chemical manufacturing, and packaging, these changes are shaping both compliance obligations and investment decisions. Keep reading for an overview of global carbon pricing in 2025.
Editors Note
For context on where things stood last year, check out An Overview of Global Carbon Pricing in 2024.
Global Trends and Market Expansion
According to the World Bank’s State and Trends of Carbon Pricing 2025 report, carbon pricing instruments now cover 28 percent of global greenhouse gas emissions, up from 24 percent in 2024. This expansion is largely driven by China’s inclusion of steel, cement, and aluminum in its national ETS, adding 3 billion tonnes of CO2-equivalent under regulation.
In total, there are 80 direct carbon pricing instruments in operation worldwide, including 43 carbon taxes and 37 ETSs, with more under development in Brazil, India, and Turkey. India released a draft framework for its Carbon Credit Trading Scheme in late 2024, while Brazil’s national ETS legislation passed first committee review in early 2025. While global carbon pricing revenues dipped slightly to 102 billion US dollars in 2024 due to softer allowance prices in major ETSs such as the EU and UK, this still represents a more than threefold increase compared to a decade ago.
Key takeaway: Carbon pricing is increasingly becoming a global norm, not an exception, especially in industrial sectors.
Sector Impact: What It Means for Industry
Carbon pricing now covers over half of emissions from the power sector and roughly 40 percent from industry, two critical sectors for automotive, chemical, and packaging manufacturers. CBAM policies in the EU and UK are placing pressure on carbon-intensive, trade-exposed industries, while coverage in other sectors such as transport, buildings, and waste is beginning to expand.
This evolving scope means that emissions liabilities are no longer limited to fossil fuel combustion, but are increasingly tied to value-chain exposure, material inputs, and indirect emissions. For companies operating across jurisdictions, the patchwork of price levels and regulatory approaches is a growing compliance challenge and a strategic planning priority.
Carbon Credit Markets and Offsetting
Carbon credit markets continued to mature in 2025, with demand increasingly shaped by compliance requirements, offset eligibility rules, and credit quality differentiation.
According to final 2024 data, reported in the 2025 World Bank report, 2024 carbon credit retirements rose by approximately 15 percent compared to 2023, driven primarily by compliance buyers meeting multi-year obligations under systems like California’s and Québec’s ETSs. This momentum carried into 2025, particularly in jurisdictions that expanded the role of carbon credits within domestic compliance systems or prepared for future integration with international markets.
Nature-based removal credits, such as afforestation and reforestation, continued to attract price premiums and strong buyer demand, reflecting increased scrutiny around environmental integrity and co-benefits.
In contrast, credits from renewable energy and industrial efficiency projects saw softening prices, partly due to oversupply and recent methodology rejections by the Integrity Council for the Voluntary Carbon Market, or ICVCM.
Several jurisdictions allowed regulated entities to offset a portion of their carbon liabilities using credits in 2025:
- Colombia permitted up to 50 percent of carbon tax liabilities to be met with eligible offsets
- South Africa proposed an increase in allowable credit use to 10 to 15 percent, depending on the sector, effective from 2026
- California maintained its long-standing offset provisions under its cap-and-trade program
Internationally, Singapore and South Korea continued to allow the use of Article 6-compliant credits under the Paris Agreement. These mechanisms offer growing cross-border flexibility, especially valuable for multinationals managing diversified operations.
For businesses pursuing net zero targets, especially in regulated sectors, the value of high-integrity offsets is rising. Market signals are clear: credits with strong environmental standards, a removals focus, or Article 6 alignment are increasingly favored by buyers, regulators, and investors alike.
Spotlight: U.S. and U.K. Carbon Pricing in 2025
While global markets evolve, the United States and United Kingdom—key jurisdictions for international supply chains—are charting distinct carbon pricing paths.
United States
While the U.S. still lacks a federal carbon pricing program, state-level systems have gained momentum throughout 2025. Colorado’s rate-based emissions trading system began its first full year of operation, providing new compliance and trading opportunities for industrial emitters. Oregon’s reinstated ETS also came online, joining established markets in California, Washington, and the RGGI states. Together, these programs now regulate a significant share of emissions from the power and manufacturing sectors.
In California, 2025 marked a peak in carbon credit retirements, driven by the conclusion of a multi-year compliance cycle. Meanwhile, Colorado’s system saw early engagement from energy-intensive sectors, reflecting growing interest in credit generation and trading under tailored state frameworks.
United Kingdom
The UK ETS remained one of the most mature carbon markets globally in 2025, with stable allowance volumes and improving policy clarity. While average allowance prices trended lower during the year, reflecting broader softening across global ETSs, the UK government focused on long-term reforms. It confirmed that its Carbon Border Adjustment Mechanism, or CBAM, will launch in 2027, closely mirroring the EU’s design to reduce carbon leakage risks across sectors like steel, aluminum, and cement.
The UK also advanced consultations on integrating carbon removals into ETS compliance, a move with significant implications for sectors investing in carbon capture and storage, bioenergy, or nature-based offset solutions. These developments suggest a market evolving not only in scope but in strategic alignment with net zero objectives. While broadly aligned with the EU model, the UK CBAM is still under consultation and may vary in product scope or free allocation treatment.
Looking Ahead: Compliance Pressure Will Grow
Even with record coverage and revenue, most carbon prices are still too low to meet Paris Agreement targets. The global emissions-weighted average carbon price is only 5 dollars per tonne of CO2 equivalent, and only a few jurisdictions, such as Sweden or Uruguay, price emissions at levels above 100 dollars.
However, the tightening trend is clear:
- Broader CBAM adoption is pushing jurisdictions to implement domestic carbon pricing
- More ETSs are planned in large economies, including Brazil and India.
- Sectors previously exempt, such as agriculture, shipping, and buildings, are increasingly being considered for coverage
So, What’s Next?
In 2025, carbon pricing is no longer an emerging policy, it is a defining feature of global industrial regulation. For businesses in the U.S. and UK, particularly in automotive, chemicals, and packaging, this shift brings rising compliance obligations, new reporting requirements, and growing cost exposure tied to emissions.
To stay ahead, companies should focus on the essentials:
- Map exposure to carbon pricing across jurisdictions
- Forecast emissions and model future carbon costs
- Evaluate eligible offsets and removals for compliance or net zero targets
- Align internal systems with regulatory disclosure and reporting standards
Tetra Tech helps companies make sense of this complexity. Our experts provide end-to-end support, from emissions data management and regulatory reporting to compliance strategy, offset procurement, and internal training. Whether you’re responding to an ETS, preparing for CBAM, or setting a science-based target, we help you build a carbon strategy that meets both regulatory and business needs.
Contact us today at [email protected] to schedule a strategy consultation or compliance review.
