Link to downloadable PDF: Working paper on Global Governance of Carbon Pricing

By Daniel Muth (VU), Mathieu Blondeel (VU), Philipp Pattberg (VU)

Global carbon pricing governance and the EU climate strategy

Carbon pricing mechanisms (CPMs) have been proliferating across the globe. CPMs are economic instruments that assign monetary value to greenhouse gases emissions, helping to capture the social cost of the pollution they cause, such as crop losses and increased health care costs from droughts. These climate policies are widely praised as key instruments for effectively tackling climate change, and have become the cornerstone of climate action in the EU.

The existing EU emissions trading system (EU ETS), which regulates emissions from carbon-intensive industries, has been undergoing reform, while the new EU ETS2, extending coverage to the transportation and building sectors, is expected to become fully operational in 2027.

In parallel with efforts to strengthen the EU’s existing ‘domestic’ carbon pricing framework, promoting carbon pricing on a global scale has emerged as a crucial objective of the EU’s climate diplomacy. While the processes and mechanisms behind the global diffusion of carbon pricing before the landmark 2015 Paris Agreement are relatively well documented in the literature, the scholarly understanding of international organizations’ role in promoting broader adoption of carbon pricing mechanisms is limited. Specifically, how international organizations contribute to embedding carbon pricing within a polycentric governance framework is not well understood. This study aims bridge this gap by mapping and analyzing existing global governance initiatives focused on carbon pricing.

Contribution #1: A unique dataset

We create a unique and novel dataset encompassing 55 institutions, governance initiatives, and 16 specific programs aimed at expanding adoption and integration of this climate policy instrument in global climate action. The analysis focuses on the following variables: governance functions, location of headquarters, geographic scope, membership composition, core themes, and the initiatives’ relationships with the World Bank, United Nations, and the European Union.

Taking this approach, the paper makes a number of significant contributions. First, it catalogues and thus provides a snapshot of all major transnational carbon pricing governance initiatives, considerably deepening our understanding of how they operate and integrate into international climate policy. For example, the analysis uses various visualization tools to show how the global governance system has expanded over time, and reveals that global carbon pricing governance is primarily dominated by initiatives promoting voluntary carbon markets.

The analysis highlights the significant institutional overlap in governance functions, with most initiatives focusing on information sharing and networking, as well exhibiting a high level of hybridization in terms of membership. Indeed, more than 30% of all initiatives are multistakeholder in nature.

In addition, our analysis demonstrates, by examining which initiatives are nested in global institutions, how the United Nations (UN) has (re-)emerged as key player in the global carbon pricing governance arena following the Paris Agreement. And although the dataset shows that most governance initiatives operate with a global geographic focus, Sub-Saharan Africa, with its clear emphasis on the development of voluntary carbon markets, and the East Asian and Pacific regions, are hotspots for governance activities.

Last, as this dataset will be made publicly available, it will provide a highly valuable resource for future research to build on and expand (e.g. with additional variables) with the objective of deepening the scholarly knowledge on global carbon pricing governance.

Contribution #2: Policy recommendations

The second contribution is a set of policy recommendations for the EU, to efficiently achieve its strategic objectives for promoting global carbon pricing. The recommendations include the following:

• Develop a comprehensive strategy to confront emerging tradeoffs in the governance of international and voluntary carbon markets. For example, adhering to the Article 6 rules of Paris Agreement would promote multilateralism and global climate cooperation, although that could come at the expense of environmental effectiveness and integrity. The recently created Task Force for International Carbon Pricing and Markets Diplomacy within the European Commission is well positioned to address various considerations, as it is specifically designed to integrate domestic carbon pricing policies with international and voluntary markets in its operations.
• Locate the niche area where the EU’s knowledge and competencies in carbon markets may be most effectively utilized to promote carbon pricing. There is a window of opportunity to address the critical need for operational and financial initiatives in global carbon pricing governance. This could include providing robust emissions monitoring systems, auction platforms, and training for future administrators. Furthermore, leveraging decades of experience in stakeholder management (including industries and representatives from different policy domains within European institutions) to address key political economy challenges could be highly valued by partner countries. A focus on technical aspects would complement political initiatives, such as the Call to Action for Paris-aligned Carbon Markets, in an effective manner.
• Leverage ongoing dialogues with trading partners concerning the Carbon Border Adjustment Mechanism (CBAM) (expected to be fully operational from 2026 onward) to offer technical assistance and support capacity-building initiatives for implementing carbon pricing in third countries.
• Adopt a more inclusive and responsive approach in supporting global carbon pricing initiatives, to strengthen the EU’s reputation as a trusted development partner for developing countries.
• Develop a deeper engagement with US carbon crediting agencies and corporate initiatives—key players in voluntary carbon markets—to ensure the environmental integrity of VCMs. The ongoing and large-scale rollback of national climate policy during Donald Trump’s second term underscores the importance of private and subnational policy development. Investing in a more strategic and robust relationship with these sectors could significantly benefit global climate action, while aligning with the EU’s strategic objectives.

In addition to the recommendations, we propose several promising avenues for future academic research which have crucial policy implications. For instance, analyzing how the legitimacy and effectiveness of governance initiatives are perceived in developing countries can help EU policymakers understand which initiates are practical and effective locally. It can also reveal how trading partners view the credibility of new initiatives emerging from regions like the US, EU or BRICS countries. These findings could ultimately inform the EU’s outreach strategy and funding decisions for global initiatives.