Foto CO2-beprijzing: uitzicht op een fabriek met een windmolen ernaast

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Adequate pricing of carbon emissions

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To limit global warming to below 2 degrees Celsius, we need to accelerate the transition to a climate-neutral economy. Better pricing of carbon emissions is essential for this, meaning that more polluters must pay for their carbon emissions, and they must pay more.

We do not currently seem to be on track to meet climate targets. A key reason for this is that polluters are still paying too little to compensate for the societal impact of their carbon emissions. Consequently, companies and people worldwide have few financial incentives to strive for sustainability and reduce their emissions. Carbon pricing could be a solution. Governments can use carbon pricing to compel carbon-emitting businesses to pay a price for their climate impact. This could trigger such businesses to make the transition to green alternatives faster. This is important to help mitigate the risks of climate change.

Why is DNB involved with carbon pricing?

At De Nederlandsche Bank (DNB) we are committed to safeguarding the stability of the Dutch economy and the financial sector. Climate change poses threats to both. For one thing, the likelihood of natural disasters has increased, which may disrupt our economy. Also, if we keep postponing the transition to green energy, we may end up having to do so very abruptly. This could also severely disrupt our economy, which is why we study topics such as the energy transition and carbon pricing, and advise the government.

Carbon pricing – the state of play

The good news is that carbon pricing is being implemented more and more all around the globe. According to the World Bank, priced emissions accounted for more than 20% of emissions in 2024. This was 15% in 2020 and only 5% in 2010. But most emissions are not yet subject to pricing. In addition, progress has been slow in recent years, especially in rich countries. And even when companies have to pay for their carbon emissions, prices are often too low. 

Infographic carbon pricing: most carbon emissions not yet priced

The way forward

At DNB we recommend better pricing of carbon emissions. This means putting a price tag on more emissions, and raising prices. Governments can do this in different ways, for instance by imposing a carbon tax or by operating an emissions trading system (ETS). This is a system in which companies must buy credits to be allowed to emit carbon. Companies can then trade these credits. To achieve the most climate impact, an ETS should be implemented on a global or at least European level. International cooperation in climate policy could also mitigate the impact on the economy. 

Competitiveness of the Dutch energy-intensive industry

Carbon pricing in Europe

Much can also be achieved at the European level. In July 2021, the European Commission (EC) presented a comprehensive set of proposals for reducing greenhouse gas emissions by at least 55% by 2030, compared to 1990 levels. Carbon pricing is an important element in the proposals. Currently, only certain businesses in the energy and heavy industry sector in the EU pay for their carbon emissions. They do so under the European ETS. Besides tightening the ETS, the EC proposes introducing a wider-scoped trading system that also covers such sectors as road transport and buildings. A system of carbon certificates also applies at the EU's external borders, which importers of electricity, steel and cement must buy. We at DNB welcome these opportune proposals. 

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