25th May 2026
The World Bank report State and Trends of Carbon Pricing 2025/2026 says carbon trading and carbon taxes are becoming a major part of the global economy. Governments are increasingly using them both to cut emissions and raise money.
What is carbon trading?
Carbon trading works by putting a price on carbon emissions.
Companies are either:
taxed for emitting CO₂, or
given tradable permits under emissions trading systems (ETS)
Firms that reduce emissions cheaply can sell spare permits to companies struggling to cut pollution.
The idea is to use market forces to encourage cleaner energy and industry.
Main findings of the report
1. Carbon pricing is spreading rapidly
The World Bank says:
there are now 87 carbon pricing systems worldwide
nearly 30% of global greenhouse gas emissions are now covered
coverage could soon rise to one-third of world emissions
This is a huge increase compared with a decade ago when only around 12% of emissions were covered.
Countries using carbon pricing now include:
the European Union
China
Canada
United Kingdom
South Korea
Major emerging economies such as India and Vietnam are also developing systems.
2. Governments are making huge amounts of money
Carbon pricing generated over:
$100 billion in 2024
$107 billion in 2025
according to the report.
The World Bank says much of this money is being used for:
green infrastructure
transport
renewable energy
climate adaptation
public finances generally
Critics however argue some governments may become financially dependent on carbon revenues.
3. Carbon prices are rising
Average global carbon prices have roughly doubled over the past decade to about:
$21 per tonne of CO₂ equivalent
according to the report.
Higher prices are intended to:
discourage fossil fuel use
encourage energy efficiency
speed investment in cleaner technology
However, the report notes prices still vary hugely between countries and are often too low to meet climate targets.
4. Emissions trading systems dominate growth
The biggest expansion is happening through ETS systems rather than direct carbon taxes.
Under ETS:
governments cap total emissions
companies buy and trade allowances
pollution rights become a market commodity
The largest systems are:
the EU ETS
China’s national carbon market
The report says power generation is now the sector most heavily covered by carbon pricing.
5. Carbon credit markets remain controversial
The report also examines voluntary carbon markets where companies buy credits to “offset” emissions.
Examples include:
forest planting
rainforest protection
land restoration projects
The World Bank says:
carbon credit issuance rose about 8%
prices weakened slightly in 2025
forest and reforestation credits still command premium prices
But the report also acknowledges ongoing concerns about:
double counting
exaggerated environmental claims
weak verification standards
whether some projects genuinely reduce emissions
Academic reviews cited in wider discussion of the report argue voluntary markets face “systemic critiques regarding integrity.”
6. Developing countries are becoming central
One major theme is that developing economies are increasingly joining carbon markets.
The World Bank argues carbon pricing could:
attract green investment
provide government revenue
support economic development
finance climate adaptation
But critics fear poorer countries could become dependent on selling carbon credits to wealthier nations rather than developing their own industries.
Criticisms and concerns
Although the report is broadly supportive of carbon pricing, critics raise several concerns:
Higher consumer costs
Carbon pricing can increase:
fuel prices
electricity bills
transport costs
industrial costs
This can become politically unpopular, especially during inflation crises.
Risk of “carbon leakage”
Industries may relocate production to countries with weaker climate rules.
Uneven global competition
Countries with strict carbon prices may fear losing competitiveness against nations with cheaper energy.
Questions over effectiveness
Some researchers argue current prices remain too low to significantly change behaviour quickly enough.
Overall conclusion
The World Bank’s overall message is that carbon pricing is moving from a niche climate policy into a central part of the world economic system.
The report argues:
carbon pricing is expanding steadily
governments increasingly rely on it financially
emerging economies are joining rapidly
carbon markets are becoming more institutionalised and globalised
But it also recognises that major political and practical challenges remain, especially around:
fairness
household costs
industrial competitiveness
trust in carbon credits
whether prices are high enough to meaningfully cut emissions.
Highland Council and Scottish Government
Both The Highland Council and the Scottish Government are becoming increasingly involved in carbon trading and “natural capital” schemes, especially around peatland restoration, woodland creation and carbon credits in the Highlands.
The Highlands are central to this because Scotland contains huge peatland areas that naturally store carbon. Restoring damaged peat bogs allows landowners or projects to generate carbon credits which can then potentially be sold to companies wanting to offset emissions.
How Highland Council is involved
The Highland Council is not directly operating a carbon trading market itself, but it is helping enable and support projects connected to green finance and carbon credits.
One major example is the Flow Country peatland project in Caithness and Sutherland.
The Flow Country Green Finance Initiative
The Highland Council has supported the “Flow Country Green Finance Initiative,” which aims to:
restore peatlands
attract private investment
generate carbon credits
channel some benefits into local communities
The council says the Flow Country’s peatlands store around 400 million tonnes of carbon and could attract “premium carbon prices” through green finance schemes.
The council also helped support financing through Highland Opportunity Investments Ltd (HOIL), which provided funding to peatland restoration projects before carbon credits are sold.
Highland Council leaders argue these schemes could create:
green jobs
tourism
rural investment
long-term income streams for communities
Highland Council backing wider carbon taxation ideas
The council has also shown interest in wider land-carbon policies.
Council papers supported the principle of a proposed “Carbon Emissions Land Tax” aimed at encouraging large landowners to manage land in ways that capture more carbon.
The idea behind this is:
land emitting carbon could face penalties
restored peatlands and woodland could gain financial value
councils could gain revenue for climate projects
How the Scottish Government is involved
The Scottish Government is much more deeply involved because it:
funds peatland restoration
supports official carbon credit systems
sets climate targets
helps regulate the emerging market
Funding peatland restoration
The Scottish Government funds:
Peatland ACTION
woodland creation grants
biodiversity schemes
climate restoration projects
The government sees peatlands as essential for reaching Scotland’s net-zero climate targets.
Supporting official carbon credit systems
The Scottish Government supports the:
Peatland Code
Woodland Carbon Code
These are certification systems that verify carbon savings so credits can be traded commercially.
For example:
restoring damaged peatland can generate verified carbon units
woodland planting can generate future carbon credits
businesses can then buy those credits to offset emissions
Encouraging private investment
Scottish ministers increasingly argue public money alone cannot fund climate restoration, so they are encouraging “blended finance”:
public grants
private investors
carbon credit markets
environmental investment funds
This is one reason large estates across the Highlands have become attractive to investors seeking carbon opportunities.
Why this is controversial
There is growing debate in Scotland about who benefits.
Critics argue:
wealthy investors are buying Highland estates mainly for carbon profits
local communities may gain little control
public grants can increase private land values
“green lairds” may replace traditional landowners
Some community groups and campaigners want:
stronger regulation
more community ownership
public stakes in carbon projects
greater local financial benefit
Others worry carbon trading allows large corporations to continue polluting elsewhere simply by buying offsets.
Supporters however argue Scotland has:
globally important peatlands
major carbon storage potential
opportunities for rural employment
chances to attract climate investment into fragile Highland economies
So both Highland Council and the Scottish Government are effectively trying to position the Highlands as a major centre for peatland restoration and carbon-finance projects — though the long-term economic and social consequences are still heavily debated.
For many reports on the topic in the report go HERE