The US, the world's biggest producer of fossil fuels, is expected to increase its assessment of the social cost of carbon next year as countries across the world strive to reduce greenhouse gas emissions by the middle of the century, according to the Bank of Singapore.
"We expect the Biden administration to further increase its assessment of the social cost of carbon next year following a full review and we expect this to be a key policy instrument in Biden’s whole-of-government approach to fighting climate change," the bank said in a note on Monday.
In February, US President Joe Biden reinstated a metric from the previous Obama administration to calculate the social cost of carbon – a move that could help it introduce stricter reforms to combat climate change.
The yardstick to assess the damage that greenhouse gases and associated pollution inflict on society was set at $51 per tonne of carbon dioxide.
Carbon taxes are an indirect form of taxation, which charges emitters for each tonne of greenhouse gas that is emitted.
The previous Trump administration discounted the impact of climate change and set the social cost of carbon at $8 a tonne.
The $51 per tonne is temporary and is expected to rise to $125 per tonne following the review.
Multilateral financial institutions are also nudging countries pursuing energy transition to price their carbon emissions.
The International Monetary Fund has proposed creating a carbon price floor of $75 per tonne for the wealthiest and highest-emitting countries around the world.
The average global emissions price is currently $3 per tonne.
"Our view remains that global efforts to pursue sustainable, climate-resilient development paths and mitigate the threat of climate change will drive wide-ranging, significant changes to the global economy for years to come," the Bank of Singapore said.
The Covid-19 pandemic has prompted several countries to adopt net-zero standards and pledge to offset their carbon emissions and adopt energy-efficient technologies and alternative fuels.
The 2015 Paris Agreement provides a mandate for countries to lower their carbon emissions to well below 2°C (3.6F) above pre-industrial levels, preferably about 1.5°C. Carbon capture, use and storage is favoured by several oil producers to green their processes and is one of the many strategies governments are adopting to reach their goal. Production of low-carbon hydrogen is also at the top of green investment agendas.
"Businesses that anticipate and adapt successfully to these changes stand to benefit from the reshaped economic landscape as policymakers worldwide strengthen their response to the threat of climate change," the bank said.