Insights from the World Bank’s State and Trends of Carbon Pricing 2025 and their relevance for the GFarm project
The World Bank Group recently issued its State and Trends of Carbon Pricing 2025 report, covering the current landscape and emerging trends in direct carbon pricing instruments and carbon markets. Interest in carbon pricing has grown significantly, as it offers a powerful tool to mobilize finance and secure development outcomes, even during times of global uncertainty.
Pragmatic Solutions in Times of Tight Resources and High Ambitions
Several key terms are essential to understand when discussing carbon pricing. Carbon pricing aims to align the cost of carbon-intensive fuels and processes with their broader social costs. This includes: Emissions trading systems (ETS), where governments place a cap on GHG emissions generated by covered entities. Carbon taxes, where entities pay a fee for their emissions. Carbon crediting mechanisms, where tradable credits are generated through voluntary activities that reduce or avoid emissions.
Navigating a Slowing Global Economy
The global economy is currently facing headwinds amid escalating trade tensions and heightened policy uncertainty. Hopes for a rebound in 2025 have been undermined by ongoing volatility and shifts in global trade dynamics. According to the Global Economic Prospects report, global growth is projected to slow to 2.3% in 2025 – below the pre-pandemic 10-year average of 3.1%. Climate change further exacerbates these challenges, as more frequent and severe weather events increase the cost of disaster recovery, damage infrastructure, and disrupt supply chains.
Today, around 28% of global emissions are covered by a direct carbon price. Economies representing nearly two-thirds of global output have implemented either a carbon tax or an ETS. Countries like Brazil, India, and Türkiye are advancing domestic frameworks, while others – such as Zambia, Tanzania, Paraguay, and Vietnam – are preparing to engage in international carbon markets.The focus on carbon pricing is growing worldwide.
The Role of Carbon Credit Markets
Carbon credit markets serve several important functions. They help meet climate commitments, reduce the cost of new technologies, and finance nature-based solutions, such as forest restoration. The number of carbon pricing instruments has grown from fewer than 10 in 2005 to more than 80 today – another evidence of global progress.
The impact of a pricing instrument depends on several variables: price level, sectoral coverage, and access to cost-effective mitigation options. Beyond emissions reductions, carbon pricing improves air and water quality, with positive outcomes for public health. While not a silver bullet, carbon pricing is a key instrument in the broader climate and development policy toolbox, supporting the transition to net zero.
Sectoral Gaps in Coverage
Despite progress, certain sectors remain largely untouched by carbon pricing. Agriculture and waste, for example, produce significant emissions yet are often outside the scope of ETS or carbon taxes. Agriculture alone accounts for over 12% of global emissions. Some countries are testing new approaches – Denmark, for instance, is pioneering a carbon tax on livestock and the use of agricultural lime.
The Evolving Landscape of Carbon Credit Markets
Carbon credit markets trade in units – each representing 1 tCO₂e of reduced, avoided, or removed emissions – generated through voluntary mitigation activities. Demand for carbon credits has grown, particularly from compliance buyers. The volume of retirements (credits used for specific claims or obligations) serves as a key indicator of market demand.
Voluntary buyers are showing increasing interest in nature-based removals and clean cooking projects. Retirements of nature-based carbon removal credits rose nearly 25%, driven by higher supply and stronger buyer demand. Investor-led initiatives, such as the Symbiosis Coalition’s 20-million-ton commitment to purchase nature-based removals, are bringing new capital to the sector.
Implications for GFarm and the Future of Agricultural Sustainability
As a project dedicated to transforming agriculture through data and innovation, GFarm stands to benefit from the growing relevance of carbon crediting in the agricultural sector. Although still underrepresented in carbon pricing systems, agriculture is gaining attention for its potential to generate high-integrity carbon credits through practices such as regenerative farming, improved soil management, and methane reduction.
GFarm can play a vital role in bridging the gap between small-scale farmers and carbon markets all while providing data infrastructure, digital tools, and monitoring frameworks that support measurable, reportable, and verifiable emissions reductions. As carbon markets evolve, initiatives like GFarm are well-positioned to drive sustainable agricultural practices that deliver both climate and economic resilience.
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The full World Bank Group State and Trends of Carbon Pricing 2025 report can be read here: https://www.worldbank.org/en/publication/state-and-trends-of-carbon-pricing