Efforts to address climate change through coordinated global carbon pricing have faced significant challenges, with recent developments in China and the United States emerging as unexpected factors influencing emissions reduction. Economists long advocated for market-based mechanisms such as carbon pricing to internalize the environmental costs of carbon emissions, ideally through harmonized international schemes. However, the pursuit of multilateral carbon pricing has encountered political and practical obstacles, leading to limited progress.

The European Union established its emissions trading scheme (ETS) in 2005, aiming to reduce pollution by capping emissions and allowing trading of permits. While the ETS has contributed to emissions reductions in covered sectors, its effectiveness has been limited by the widespread allocation of free permits to industries such as steel and chemicals. To address this, the EU is expanding the scheme and introducing the carbon border adjustment mechanism (CBAM), which imposes carbon costs on imports to protect EU industries from unfair competition and to prompt other countries to align with its climate policies.

Despite these efforts, the EU’s initiatives have only influenced a limited group of trading partners, including Turkey, South Korea, and the United Kingdom, which have adopted or harmonized carbon pricing measures. However, the EU’s approach has not attracted broader participation from major economies, and the CBAM has drawn criticism, particularly from India, China, and other large carbon-emitting nations, which accuse it of protectionism. This opposition, voiced notably at the recent COP climate conference, complicates efforts to expand global carbon pricing.

In the United States, attempts to implement federal carbon pricing have stalled. Barack Obama’s proposed cap-and-trade legislation failed to pass Congress in 2010. Subsequently, President Joe Biden pursued emissions reductions through public investments and trade tariffs, although some of these programs experienced cuts under the administration of Donald Trump. Efforts by international organisations such as the OECD and the World Trade Organization to establish harmonized carbon pricing have also made limited headway.

Amid these difficulties, China has emerged as an influential player in the climate landscape, despite its extensive coal consumption and reluctance to commit to binding carbon targets. Over the past decade and a half, China has invested trillions of dollars in renewable energy and green technologies, including electric vehicles, largely driven by goals of energy security and industrial development rather than explicit environmental concerns. The recent escalation of oil prices, linked to geopolitical tensions in the Middle East, has effectively acted as a de facto carbon price, restraining China’s oil consumption.

Data from the energy think tank Ember indicate a surge in green technology sales in both China and the United States, suggesting increased adoption of renewables and electrification. However, the permanence of this trend remains uncertain. Higher oil prices have also led some countries to rely more heavily on coal, while oil prices have fluctuated and only briefly exceeded $100 per barrel since the Iran-related conflict escalated.

While economists continue to advocate for the efficient carbon pricing models exemplified by the EU’s ETS and CBAM, the unpredictable interplay of international trade policies, geopolitical conflicts, and national industrial strategies means that the current trajectory relies on indirect and unplanned drivers of emissions reduction. Although unconventional, the combination of China’s green technology expansion and shifts in energy demand following geopolitical disruptions currently represents one of the more tangible paths toward reducing global emissions.