Trésor-Info - Publications de la direction générale du Trésor - Decarbonisation

The Role of Carbon Credits in Financing Global Climate Goals

2025-11-25T00:00:00+01:00

Carbon credits are financial instruments aimed at supporting greenhouse gas emission reduction or carbon removal projects, especially in developing countries. Businesses use them to offset some of the emissions generated by their operations (offsetting) or to demonstrate their environmental commitment (contribution), for example by funding afforestation projects.

Carbon credits, which help to raise private-sector funding for climate initiatives, are instruments that can be used alongside, but are distinct from, emission trading schemes such as the European Union Emissions Trading System (EU ETS).

In 2024, around $500m in credits were traded on carbon credit markets globally. These markets are experiencing a crisis due to supply-side quality issues as well as challenges to the credibility of the principle of offsetting emissions owing to several greenwashing scandals. Several public- and private-sector initiatives are nevertheless seeking to better regulate practices to ensure the market’s credibility and real climate benefits. The establishment of an international carbon credit trading scheme is foreseen by the Paris Agreement on climate change, with the aim of providing a firm foundation for the market and fostering climate cooperation between countries.

EU Member States have adopted a climate target for 2040 that will allow high-quality international carbon credits to be used to contribute up to 5% towards the target, thereby helping to achieve European climate goals cost-efficiently by raising EU funding for projects outside the bloc. In addition, the European Commission has proposed to integrate permanent carbon removal projects, located on European soil, into the EU Emissions Trading System (EU ETS).

Carbon Pricing in Nordic Countries

2024-07-11T00:00:00+02:00

Nordic countries (i.e. Denmark, Finland, Iceland, Norway and Sweden) introduced carbon neutrality targets at a very early stage and made the decision long ago to raise their national carbon price levels in order to expedite the greenhouse gas (GHG) emission reduction process (see Chart on cover page).

High levels of explicit carbon pricing have had a significant impact in these countries. Carbon taxes have been a major factor in cutting CO2 emissions since the early 1990s, particularly in the heating and transport sectors, with Sweden acting as the trailblazer.

Just like the Alain Quinet report in France, several Nordic countries have estimated the carbon price required to achieve their climate targets and then, as in Denmark and Norway, have decided, in order to bridge the carbon pricing gap needed to achieve their climate objectives, to significantly raise their respective national nominal carbon tax rates in 2022 and impose double carbon pricing (carbon tax and European carbon allowances) on certain industries, thereby standing out from other European countries.

Concurrently, support measures were implemented to safeguard household purchasing power together with target subsidies and partial tax exemptions for certain industrial sectors. These measures helped to ensure the acceptance of carbon pricing.

Potential fossil fuel substitutes have also been promoted in industry, prompting the development of strategic industrial sectors such as low-carbon steel. Bioenergy (biomass-fuelled heating networks, black liquor) and electrification (electrical industrial processes, electrolysers, electric vehicles, heat pumps) have therefore established a foothold as a result of the increase in carbon prices. In 2023, far-reaching government support on an unprecedented scale was proposed for carbon capture and storage, most notably in Norway and Denmark. This proposal was made with a view to forming a Nordic hub that would play a pioneering role across the globe and could be used to reduce carbon emissions produced by certain industrial activities in the EU.

Mésange Vert, a New Model to Assess the Impact of Economic Shocks on France’s Carbon Emissions

2024-07-09T00:00:00+02:00

Mésange Vert extends the scope of the macroeconomic model Mésange (Modèle économétrique de simulation et d’analyse générale de l’économie) used by the French Treasury (DG Trésor). The new module quantifies the impact of economic shocks and policy reforms on France’s carbon emissions in the medium and long terms. Besides measuring the climate impact of standard shocks, it is also a useful addition to the toolkit for assessing economic and climate policies.

Mésange Vert is structured in two parts: energy and climate. The energy component gives a stylised view of the country’s final energy consumption and how it breaks down between gas, electricity and other sources, while the climate component calculates the carbon emissions associated with this energy profile.

The module is designed to be extremely flexible to use: the default settings include several energy sources (electricity, coal, oil and gas) and two economic agents (households and firms). Other features, such as the method for calculating energy demand and calibrating the model can all be easily adjusted as needed to fit modelling requirements.

Mésange Vert can be used, for example, to analyse and compare the economic and climate effects of a permanent increase in VAT and the carbon tax to generate extra revenue equivalent to one percentage point of ex ante GDP in each case, without recycling the revenue generated. Compared to a VAT increase, putting up the carbon tax would have a slightly lower negative impact on the economy. And, by specifically targeting energy use, the carbon tax option would lead to a far greater reduction in energy consumption than a VAT increase. In addition, the carbon tax would encourage households and firms to switch from fossil fuels to electricity, making the reduction in emissions proportionally greater than the drop in energy consumption.

How Much Investment Is Required To Reach France’s Decarbonisation Targets For 2030?

2024-04-04T00:00:00+02:00

A large-scale redirection of investment flows towards decarbonisation items is required for France to achieve its climate targets. Many estimates of the additional low-carbon investment needs have been made, ranging from €55 billion to €130 billion per year from now to 2030 (an additional two to five percentage points of GDP). Comparing these estimates is particularly challenging given the wide range of definitions, methods and scopes used.

Theoretically, minimising the costs of decarbonisation should be based on a comprehensive analysis of the abatement costs of each intervention across the entire economy. In practice, the investment needs are calculated by sector.

When applying a consistent methodology across sectors, the gross additional investment needs in low-carbon items (compared to 2021) are estimated at approximately €110 billion per year by 2030.

When deducting the lower investments in (i) carbon-emitting alternatives (e.g. only factoring in the additional cost of an electric vehicle compared to an internal combustion engine vehicle), and (ii) newbuilds, assuming reduced land take, the net additional investment needs would drop to €63 billion per year (see Chart opposite). This net requirement could be further reduced by the reduction of other fossil fuel investments (e.g. lower demand for new internal combustion engine vehicles) and by energy bill savings.

These estimates are subject to considerable uncertainties. In addition, the share of the effort between public and private economic agents is not addressed in this paper, as it will depend on the set of public policies implemented.