Expanded carbon pricing is unlikely to result in immediate, large-scale emissions cuts in heavy industry because current regulations remain relatively weak, according to the authors of the newly released report. While more than half of industrial emissions are now covered by these schemes, the actual cost to companies is kept low through the use of free pollution permits to protect their global competitiveness.
The report notes that “this global increase in coverage has not yet translated into a significant rise in stringency in the industry sector” because “most industry emissions covered under carbon pricing schemes are fully or partially covered by free permits.”
In simple terms, while many more factories and plants around the world are now part of carbon pricing systems, they are not yet paying a high enough price to force a major change in how they operate. Governments have been giving away many of these pollution permits for free to prevent local businesses from moving their operations to countries with fewer regulations. This means the real-world cost of polluting remains low for now, though researchers expect prices to effectively double over the next decade as these free giveaways are gradually eliminated.
The report “State of Energy Policy 2026” was published by the International Energy Agency in France in April 2026. It was prepared by the World Energy Outlook team under the direction of Laura Cozzi, the IEA’s Chief Energy Modeller.
