Climate change and net zero

Carbon pricing is applied in different forms and as a part of different mechanisms. The most common forms are carbon taxes, the trading of carbon credits in an emission trading system, levies for carbon-heavy imports under a carbon border adjustment mechanism, and carbon credits traded outside a formal emissions trading mechanism. The present paper describes these four mechanisms of carbon pricing in more detail.

In the endeavour to increasingly burden the emitters of carbon dioxide with the true cost of their actions, the price of carbon is key. Per ton of CO₂ emitted, it has moved from around EUR 7.50 in 2018 to more than EUR 50 currently and is expected by some market participants to be around EUR 100 in 2023. Such price increases will most likely have an impact on the production costs of carbon-intense products.

The principle of imposing a levy on goods with a high share of production-based CO₂ emissions meets the endorsement of the G20 as well as the European Union as reflected in the Fit for 55 package proposals published by the European Commission in July 2021, including the planned introduction of a carbon border adjustment mechanism to reduce carbon leakage.

Although Switzerland rejected a law to reduce CO2 emissions in 2021, businesses domiciled in Switzerland still must follow the European and global trends and developments – both in terms of their operations outside Switzerland and for future pricing of goods affected by different carbon levies.

Therefore, businesses should assess the potential impact of the carbon price on their operations. While the impact of carbon pricing could be difficult to assess due to the lack of harmonisation across different jurisdictions, the general tendency is clear. Depending on the country and area involved, a company may have to comply with many different carbon pricing systems for different production sites and target markets.