Carbon pricing is one of the most potent tools governments have to cut greenhouse gas emissions
By charging polluters for the carbon they emit, it encourages cleaner choices, drives green innovation, and generates revenues that can be reinvested in people and communities. Although often misunderstood, carbon pricing is already delivering tangible results across Europe.
The European Union has been leading the way with its Emissions Trading System (EU ETS), which has been in place for 20 years. It encompasses major sectors such as electricity, industry, and aviation. A second system, ETS2, will begin in 2027 and will target emissions from road transport and buildings, bringing even more of the economy into the green transition.
Proven impact on emissions and growth
Since its launch, the EU ETS has helped reduce emissions in covered sectors by around 50%. In just the past year, emissions dropped by another 5%. At the same time, the system has supported economic growth by encouraging businesses to invest in low-carbon technologies and plan for a cleaner future.
By steadily lowering the cap on emissions, the EU provides a predictable framework that boosts investor confidence. Businesses recognise that adopting clean technologies will enable them to stay competitive and profitable over time.
Driving innovation and competitiveness
Carbon pricing is helping Europe in the global green tech market. In 2024, the EU exported €90 billion worth of clean technology, with notable growth in wind power, electrolyser manufacturing, and heat pump sales. This is not just about reducing emissions, it’s about building the industries of the future.
Revenues from carbon pricing are also reinvested directly into innovation. The EU’s Innovation Fund, fully financed by ETS revenue, has already backed nearly 200 clean technology projects worth around €12 billion, including next-generation wind farms and low-carbon steel.
Supporting a faster and inclusive transition
Carbon pricing is designed to be fair. Through the Modernisation Fund and the upcoming Social Climate Fund, revenues are used to support lower-income Member States and vulnerable households. These funds finance home insulation, clean mobility, and affordable energy solutions.
The system also helps prevent industries from relocating to countries with weaker climate rules. Measures like free allowances and the Carbon Border Adjustment Mechanism (CBAM) help ensure a level playing field while encouraging other nations to adopt carbon pricing.
Improving energy independence and health
Another significant benefit is reduced reliance on imported fossil fuels. In 2024, Europe spent nearly €400 billion on energy imports. Carbon pricing makes local clean energy more attractive, helping to keep money within the EU while increasing energy security.
Cleaner energy also means cleaner air and better health. By discouraging fossil fuel use, carbon pricing reduces air pollutants such as nitrogen oxides and fine particles, thereby lowering respiratory diseases and healthcare costs across Europe.
Carbon pricing is already in place in more than 80 jurisdictions worldwide, including China, Canada, South Korea, and parts of the U.S. Many more, like Brazil, India, and Japan, are developing their own systems.
