A tonne of CO2 can cost €0 in one place, around €84 in the EU emissions trading system and several hundred euros as a durable carbon removal credit. All three are called a carbon price. For a company trying to budget for emissions, knowing which price applies where is more useful than any single figure.
Carbon pricing puts a cost on greenhouse gas emissions through three mechanisms: carbon taxes, emissions trading systems and carbon credits. Taxes fix the price, trading systems fix the quantity, and credits put a price on reductions and removals instead of on emissions. This article explains how each works, how they interact, and how a European company can turn them into one price it can plan with.
Why price carbon at all
Emitting CO2 causes damage that the emitter does not pay for: heat, drought, floods, crop losses. Economists call that an externality. A carbon price makes the emitter pay at least part of that cost, so that cleaner options become cheaper by comparison and the market finds the cheapest reductions first.
Carbon pricing is now widespread. The World Bank counts 87 direct carbon pricing instruments, covering just over 29% of global greenhouse gas emissions and raising more than USD 107 billion for governments in 2025. The average price is nearly USD 21 per tonne (World Bank, May 2026). That average hides a wide range, from a few dollars in some systems to over €80 in the EU.
The three mechanisms compared
Carbon tax | Emissions trading (ETS) | Carbon credits | |
|---|---|---|---|
What is priced | each tonne emitted | each tonne emitted, within a cap | each tonne reduced or removed |
Who sets the price | government | the market, within a cap set by government | buyers and sellers, per project |
What is certain | the price | the total emissions | the project’s verified tonnes |
Who pays | covered emitters | covered emitters | voluntary buyers, airlines under CORSIA, some taxpayers |
European example | national CO2 taxes | EU ETS, ETS2 from 2028 | voluntary carbon market |
How it reaches a non-covered company | energy and fuel prices | energy, travel, freight, materials | direct purchase |
Carbon taxes: a fixed price per tonne
A carbon tax charges a set amount per tonne of CO2 emitted, usually collected on fuels or at large installations. The price is predictable; the amount of reduction it delivers is not.
Several European countries have national carbon taxes on fuels or industry, often on top of the EU ETS. Some taxes outside Europe link to carbon credits: Singapore lets carbon-tax payers use eligible international credits, from countries it has an Article 6 agreement with, for up to 5% of their taxable emissions. That link is one reason credit quality and Article 6 authorisation increasingly matter beyond the voluntary market (Article 6 explained).
Emissions trading: a fixed quantity, a market price
An emissions trading system caps total emissions from the covered sectors and issues allowances up to that cap. Each covered company must surrender one allowance per tonne it emits, and allowances can be traded. The cap delivers the environmental result; the price follows from supply and demand.
The EU ETS is the largest example in Europe. It covers power, heavy industry, aviation within Europe and shipping, about a third of EU greenhouse gas emissions, and its cap falls to 62% below 2005 levels by 2030. Allowances traded around €84 per tonne in August 2026. A second system, ETS2, will price fuels for buildings and road transport from 2028. Everything a company outside the system needs to know is in EU ETS explained.
Trading systems also exist in the UK, China, California, Korea and elsewhere, each with its own cap and price.
Carbon credits: a price on reductions and removals
Carbon credits work the other way round. Instead of charging for emissions, they pay for verified reductions or removals: one credit per tonne avoided or removed by a project, certified by a standard such as Verra or Gold Standard.
Most credits are bought voluntarily, by companies taking responsibility for emissions they have not yet cut, in the voluntary carbon market. Airlines buy them under CORSIA, and some governments buy them under Article 6. The price depends on the project, not on a market-wide cap: in 2026, credits range from a few euros for forest protection to over €400 for direct air capture (carbon credit prices in 2026).
A credit price is therefore a different kind of number. An allowance price tells you what it costs to emit a tonne in the EU ETS. A credit price tells you what it costs to finance a tonne of reduction or removal somewhere else.
Tip from Bernard de Wit, Founder of Regreener: “When finance teams compare a €10 credit with an €84 allowance, they usually conclude that credits are cheap. The useful comparison is different: the allowance price shows what emitting costs in the regulated part of the economy, and the credit price shows what taking responsibility costs per project. Both belong in the budget, for different tonnes.”
How the mechanisms interact
The three mechanisms are increasingly connected:
CBAM extends the EU ETS price to imports of steel, aluminium, cement, fertilisers, hydrogen and electricity, so non-EU producers pay a comparable carbon price.
International credits in compliance. The EU’s 2040 climate law allows up to 5 percentage points of the 2040 target to be met with international credits from 2036, and the Commission’s July 2026 ETS proposal would use allowance revenue to buy them.
Removals in trading systems. The same proposal would use 250 million additional allowances to buy certified permanent removals from 2031 (carbon dioxide removal explained).
Taxes that accept credits, such as Singapore’s, create compliance demand for authorised credits.
Compliance systems are starting to buy from the same pool of high-quality removals and authorised credits that voluntary buyers use. That supports prices at the top of the voluntary market.
What carbon pricing means for a European company
Most mid-market companies are not covered by any carbon tax or trading system themselves. They still face carbon prices in three layers:
Pass-through costs from the EU ETS in electricity, flights within Europe, shipping and materials, and from 2028 from ETS2 in fuels.
Border costs under CBAM if they import covered goods above the 50-tonne threshold.
Voluntary costs for the credits they choose to buy for residual emissions.
An internal carbon price brings those layers together in one number for decisions. Companies use it as a shadow price to test investments, or as an internal fee charged to business units that funds reductions and credit purchases. A common approach is to start from the EU allowance price as a reference for avoidable emissions and from your credit budget for residual ones. The methods are explained in internal carbon pricing.
“An internal carbon price works when it changes a decision. If it only appears in the sustainability report, it is a number. If it appears in the business case for a new fleet or a supplier choice, it is a price.”
Bernard de Wit, Founder of Regreener
Turning carbon prices into a budget?
We help companies work out which carbon prices they already pay, what their reduction plan saves and what budget they need for residual emissions.
