State and Trends of Carbon Pricing in 2025: A Turning Point in Global Climate Policy

As the world strives to meet its climate ambitions, carbon pricing has emerged as a central policy tool, both to curb emissions and mobilize resources. In 2025, carbon pricing has not only expanded in reach but also in nuance, driven by rising concerns over credit integrity and a shift toward higher-quality removals. What was once a fragmented patchwork of instruments has matured into a more structured architecture, even though significant challenges remain.

Carbon Pricing in 2025: Current Supply, Demand and Price Trends

According to the World Bank, The State and Trends of Carbon Pricing 2025 report highlights a notable expansion in both carbon pricing mechanisms and carbon markets. In 2024, 80 Emission Trading Systems (ETS) and carbon taxes are in operation worldwide, an increase compared to only 75 in 2023. Middle-income economies such as Brazil, India, and Türkiye are now either implementing or planning ETSs, signalling a significant shift in global policy engagement. This marks steady progress compared to only 5% coverage of global emissions in 2005. Today, about 28% of global emissions fall under a direct carbon price, generating over USD 100 billion in revenue for the second consecutive year.

State and Trends of Carbon Pricing 2025Source: World Bank

On the voluntary and compliance credit side, the market faces a mixed landscape. In terms of pricing, average credit prices are lower across most project types, yet a clear differentiation is emerging. Nature-based removal credits and those perceived as higher quality are trading at a premium. Forestry and land use projects, particularly those classified as removals, are valued at around USD 15.5 per tCO₂e. In contrast, forestry and land use projects for avoided emissions valued around USD 5.3 per tCO₂e. Credits from household devices average USD 3.5 per tCO₂e, industrial projects are priced at USD 1.4 per tCO₂e, and renewable energy (RE) credits are the lowest, averaging only USD 1 per tCO₂e. The wide spread in pricing illustrates a market that is increasingly shaped by perceived quality, permanence, and alignment with evolving standards. This shift suggests that buyers are no longer treating all credits as equal, but are willing to pay more for projects that demonstrate measurable impact and long-term durability.

Exchange-traded carbon credit prices by project typesSource: World Bank

There are approximately 1 billion unretired credits from independent crediting mechanisms, with around 67% issued before 2022. A significant share of these credits comes from forestry, land use (avoided emissions), and renewable energy projects. Meanwhile, demand dynamics are shifting. Credits from 2024 recorded three times more domestic compliance retirements compared to 2023, signaling the growing role of compliance-driven demand. These shifts in pricing and participation are not random; they are shaped by several underlying drivers.

Key Drivers Behind These Trends

he observed trends in pricing and market activity are primarily influenced by several key drivers that are shaping the direction of carbon market overall.

1. Emergence of ICVCM and Integrity Standards

One of the most influential shifts in recent years has been the rise of the Integrity Council for the Voluntary Carbon Market (ICVCM). Before ICVCM, the voluntary market was often criticized for being filled with credits of questionable quality. Many of these credits came from projects issued years ago, where methodologies were weaker and verification less strict. This is why we now see nearly one billion unretired credits because two-thirds of which were issued before 2022.  

ICVCM is introducing benchmarks to separate high-quality credits from the rest. Buyers are increasingly drawn to projects that can demonstrate strong additionality, permanence, and rigorous monitoring. As a result, removals such as reforestation, are gaining more demand. In short, ICVCM is not just cleaning up the market, it is reshaping buyer behavior by rewarding quality over quantity.

2.  Rise of Compliance-Driven Demand

While the voluntary carbon market (VCM) remains a central platform, compliance-driven schemes are increasingly driving demand. Governments and regulatory bodies are integrating carbon markets into broader climate strategies, leading companies to prepare for stricter carbon regulations. For example, Article 6 of the Paris Agreement provides a framework for international carbon trading, which is beginning to influence both corporate and country-level purchasing strategies. As compliance markets expand, they exert upward pressure on demand for credits that meet recognized standards, strengthening the connection between voluntary and regulated systems.

3. Quality Differentiation in Credit Markets

Buyers are putting more awareness in their selection of credits, with a growing preference for nature-based removal credits, projects with measurable co-benefits (such as biodiversity or community development), and newer vintages. These types of credits are trading at a premium compared to older or less robust categories like renewable energy. This differentiation reflects the shift from viewing all credits as equal to a market where integrity and impact matter. For example, forestry and land use credits command higher prices (USD 15.5 per tCO2e) compared to renewable energy credits (USD 1 per tCO2e). The widening price gap is evidence that buyers are prioritizing credibility, permanence, and broader sustainability outcomes over volume alone.

Conclusion

The trajectory of carbon pricing in 2025 reflects both opportunities and challenges. The expansion of ETS and carbon taxes is strengthening the policy foundation, while the voluntary market is evolving toward greater credibility through stronger standards such as ICVCM. Yet the persistence of one billion unretired credits highlights the risk of market oversupply if legacy instruments are not addressed.

Overall, the market is moving toward quality, credibility, and integration. Emerging economies entering the ETS landscape, combined with stronger standards such as ICVCM, are setting the stage for a more resilient and impactful carbon pricing architecture. The coming years will likely determine whether these mechanisms can balance environmental integrity with economic feasibility, ultimately shaping the effectiveness of global climate action