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Review

A Review of Carbon Pricing Mechanisms and Risk Management for Raw Materials in Low-Carbon Energy Systems

by
Hongbo Sun
1,†,
Xinting Zhang
2,† and
Cuicui Luo
2,*
1
School of Mathematical Sciences, University of Chinese Academy of Sciences, Beijing 100049, China
2
University of Chinese Academy of Sciences, Beijing 100049, China
*
Author to whom correspondence should be addressed.
†
These authors contributed equally to this work.
Energies 2025, 18(13), 3401; https://doi.org/10.3390/en18133401
Submission received: 29 May 2025 / Revised: 21 June 2025 / Accepted: 26 June 2025 / Published: 27 June 2025
(This article belongs to the Collection Energy Transition Towards Carbon Neutrality)
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Abstract

The global shift to low-carbon energy systems has significantly increased demand for critical raw materials like lithium, cobalt, nickel, rare earth elements, and copper. These materials are essential for renewable technologies and energy storage. However, their extraction and processing produce significant carbon emissions and face challenges from supply chain vulnerabilities and price volatility. This review examines the complex relationship between carbon pricing mechanisms—such as carbon markets and taxes—and raw material markets. It explores the strategic importance of these materials, recent policy developments, and the transmission of carbon pricing impacts through supply chains. The review also analyzes the systemic risks created by carbon pricing, including regulatory uncertainty, market volatility, and geopolitical tensions. We then discuss financial tools and corporate strategies for managing these risks, such as carbon-linked derivatives and supply chain diversification. Finally, this review identifies key challenges and suggests future research to improve the resilience and sustainability of raw material supply chains. Here, resilience is defined as the capacity to adapt to carbon pricing volatility, geopolitical disruptions, and regulatory shocks, while maintaining operations. The paper concludes that coordinated policies and flexible risk management are urgently needed to support a reliable and sustainable energy transition.

1. Introduction

The global transition to low-carbon energy systems is driving intense demand for critical raw materials, including lithium, cobalt, nickel, rare earth elements, and copper [1,2,3,4]. These materials are essential for renewable technologies like solar panels, wind turbines, and energy storage [5,6]. This surge in demand, however, creates significant challenges. The extraction of these materials generates high carbon emissions, supply chains are vulnerable to geopolitical events, and prices are becoming more volatile due to the expansion of carbon pricing mechanisms (e.g., carbon taxes, emissions trading systems, and carbon border adjustment mechanisms) [7,8,9]. This situation highlights a core conflict: the very materials needed for decarbonization are themselves tied to major environmental and economic risks [10,11]. The relationship between carbon prices and raw material costs is a double-edged sword. On one hand, higher carbon prices encourage cleaner production methods. On the other, they can reduce the profits of mining companies in regulated regions, potentially shifting production to areas with weaker environmental laws [12,13,14].
This review systematically examines the connection between carbon pricing policies and raw material markets through four themes: (1) Environmental trade-offs in material extraction (Section 2.1), (2) Economic resilience to policy shocks (Section 2.2), (3) Technological paths for decarbonizing supply chains (Section 3), and (4) Corporate strategies for risk management (Section 4). Unlike reviews that only summarize existing literature, our analysis critically evaluates how carbon pricing passes costs through supply chains (for example, the effects of the EU-ETS and China’s carbon market) [10,15]. It also examines how carbon pricing increases systemic risks such as regulatory uncertainty [10,16]. Additionally, it explores how carbon pricing encourages financial innovations like carbon-linked derivatives.
The review’s integrated framework connects policy drivers, market mechanisms, and enterprise responses, offering a clear way to assess these trade-offs. We conclude by identifying key challenges, such as the misalignment between policy goals and market realities, and proposing research priorities to better align decarbonization goals with supply chain resilience [17]. Achieving this balance is crucial for a sustainable energy transition [18,19].

2. Raw Materials and Carbon Policies

2.1. Strategic Role of Raw Materials

The global shift toward electrified energy systems, driven by the rapid growth of renewable technologies, has significantly increased the demand for critical raw materials. Elements such as lithium, cobalt, and nickel are essential for lithium-ion batteries, which are widely used in electric vehicles (EVs) and energy storage systems. Schmuch et al. [5] reviewed recent progress in lithium-ion battery materials and manufacturing processes for automotive applications, addressing challenges related to electrode materials, electrolytes, and their potential to meet electric vehicle performance targets.
However, this growing demand has raised concerns about supply chain risks. Olivetti et al. [1] examined supply bottlenecks for key metals in lithium-ion batteries. While the short-term supply appears adequate for most materials, they identified a potential shortage of cobalt due to the rapid increase in EV production. They recommended further research into cobalt-free battery chemistries and the use of dynamic models to better track and manage supply risks. Similarly, Swain [20] provided a review of lithium recovery methods from sources such as ores, clays, brines, and seawater, using techniques like hydrometallurgy, pyrometallurgy, chemical methods, and bioleaching. He noted that the global recovery rate of lithium is still below 1% and stressed the need for more environmentally friendly processes, particularly hydrometallurgical approaches, to meet future demand.
Beyond batteries, rare earth elements such as neodymium and dysprosium are crucial for permanent magnets in wind turbines, which improve energy conversion efficiency. Binnemans et al. [21] reviewed rare earth recycling technologies and emphasized the importance of building efficient and large-scale recycling systems to reduce supply risks and environmental harm. Copper also plays a key role in renewable infrastructure due to its high conductivity, which makes it vital for power transmission. Elshkaki et al. [2] applied a global scenario model to project a 275–350% increase in copper demand by 2050, potentially exceeding known reserves. They proposed improving recycling rates and recovery efficiency to reduce the energy intensity of primary copper production.
As shown in Table 1, key raw materials differ in terms of their supply risk, price volatility, and carbon footprint, all of which influence their strategic importance in the low-carbon transition.
Despite their importance, the extraction and processing of these materials often involve significant environmental costs. Mudd [22] found that the shift toward laterite nickel ores has led to higher energy use and emissions in nickel mining. Sonter et al. [23] evaluated the impact of mining on biodiversity and argued that current conservation strategies are insufficient. They called for long-term planning and stronger cooperation between mining companies, governments, and environmental groups. Vidal et al. [24] similarly emphasized that renewable energy systems depend heavily on mining and advocated for solutions such as recycling and material substitution to make demand more sustainable.
Moreover, geopolitical risks also pose major challenges for raw material supply. For example, the Democratic Republic of Congo supplies much of the world’s cobalt, but mining practices there often raise ethical and environmental concerns. Banza Lubaba Nkulu et al. [4] conducted fieldwork in the region and found high cobalt exposure in local communities, especially among children, highlighting the serious health and sustainability issues in the current supply chain.
To address these interconnected risks, recent research has called for integrated risk assessment frameworks. Ali et al. [25] proposed an interdisciplinary framework to ensure the ecological sustainability of global mineral supply chains. This includes comprehensive data analysis, demand forecasting, and responsible sourcing practices. Nansai et al. [3] used material flow analysis to trace the global movement of key metals used in low-carbon technologies. They found that the green use efficiencies of neodymium, cobalt, and platinum were 1.2%, 53%, and 15%, respectively. They suggested performance indicators to help prioritize trade flow improvements. A recent commentary by Mertens et al. [17] further examined supply chain vulnerabilities for four key renewable energy technologies: solar photovoltaics, wind turbines, Li-ion batteries, and water electrolyzers. Their analysis proposed four mitigation pathways: (i) enhancing material efficiency through technological improvements, (ii) material substitution strategies (e.g., cobalt-free battery chemistries), (iii) scaling recycling systems and eco-design principles, and (iv) strategic relocalization of supply chains.

2.2. Global Carbon Pricing Trends

Carbon pricing policies are expanding rapidly and increasingly influence raw material markets through regulatory requirements and economic pressures (see Table 2). Key policy developments include the following:
  • Carbon Border Adjustment Mechanism (CBAM): The European Union (EU) and other jurisdictions have implemented CBAMs, which impose tariffs based on the carbon content of imported goods, including raw materials. This mechanism shifts the carbon cost upstream, affecting trade competitiveness and encouraging cleaner production. Böhringer et al. [26] found that border adjustments can reduce emissions leakage and ease the burden of unilateral climate actions on domestic industries, though they offer limited global cost savings. Mattoo et al. [9] discussed the trade-offs between reducing leakage and avoiding protectionism, warning that ambiguities in WTO rules may lead to disputes. They recommended basing carbon taxes on the location of production through regional agreements. Abrell et al. [27] further supported the role of CBAMs in global emissions reduction through their analysis of their economic and environmental effects.
  • Expansion of Emissions Trading Schemes (ETS): Schemes such as the EU-ETS and China’s national ETS are expanding their sectoral coverage and tightening emission caps. These policies impose additional costs on raw material extraction and processing. Zhang [15] examined China’s pilot schemes and emphasized the importance of participant education, rule enforcement, and financial treatment of allowances in promoting active carbon trading. Ellerman et al. [28] described the EU-ETS as a model for global replication, reporting emissions reductions of 10–20% in energy-intensive sectors.
  • Green Trade and Investment Agreements: Modern trade agreements increasingly incorporate environmental, social, and governance (ESG) standards that require carbon disclosures and green certifications. These provisions impact raw material exporters by imposing stricter environmental criteria. Hufbauer et al. [29] explored the broader implications of digital trade and regulation, noting that regional regulatory differences influence the scope of green trade policies. Agreements like the US–Mexico–Canada Agreement (USMCA) already include climate-related clauses that affect supply chains and trade flows.
Table 2. Summary of global carbon pricing policies and their impacts on raw materials.
Table 2. Summary of global carbon pricing policies and their impacts on raw materials.
PolicyRegionTarget SectorsImpact on Raw Materials
CBAMEUImports of cement, steel, aluminum, fertilizers, electricityImposes carbon costs on imports, encouraging producers to decarbonize and affecting global trade flows.
EU-ETSEUPower, industry, aviationIncreases costs for energy-intensive processes and promotes investments in cleaner technologies.
National ETSChinaPower, expanding to cement, steelDrives regulatory compliance and encourages industry investment in low-carbon alternatives.
Green Trade AgreementsUSMCA, EUMultisectoral with ESG requirementsRequires exporters to adhere to environmental standards, potentially excluding high-emission supply chains.
Carbon TaxesSweden, Canada, othersEnergy, transport, industryProvides direct financial incentives to reduce fossil fuel consumption and emissions in extraction and processing.
These global policy shifts require adaptive strategies to align environmental objectives with economic resilience. For example, Hepburn et al. [30] analyzed 25 COVID-19 recovery plans across G20 countries, highlighting the benefits of investments in clean infrastructure and energy efficiency. China’s carbon pricing framework has followed a unique path. Guilhot [31] identified the Twelfth Five-Year Plan (2011–2015) as a turning point, introducing national carbon intensity targets. While regional pilot markets have faced challenges in local implementation, the launch of the national ETS in 2021 marked major progress. Despite being the world’s largest carbon market, it continues to face issues related to inter-provincial coordination.
In Europe, Verde and Borghesi [7] highlighted the EU ETS’s dual functions—as a domestic climate policy and as a platform for international market integration. Its linkage with the Kyoto Protocol enabled technology transfer but also created issues such as market surplus. Stiglitz [32] argued that the optimal carbon price path should decline over time, while Jakob and Overland [33] emphasized the role of green industrial policies in reducing barriers to clean technologies and building political support. Klenert et al. [34] recommended using carbon revenues to close the gap between actual and necessary price levels and to enhance public acceptance.
Attention has also turned to low-carbon construction. Mykytyuk et al. [35] found that managing low-carbon building materials effectively improves the financial performance of construction firms. Bayer and Aklin [36] estimated that the EU ETS reduced total EU CO2 emissions by 3.8% between 2008 and 2016 compared to a counterfactual without carbon markets.
In China, Ma and Song [6] analyzed the coal gasification sector and found that optimizing the emission structure contributed most to carbon mitigation. Advances in hydrogen energy systems also call for adaptable pricing models. Lopez-Ruiz et al. [37] showed that innovations in low-carbon combustion can interact with pricing mechanisms. Similarly, De Ayala and Sola [38] demonstrated that informational tools, such as the EU Energy Efficiency label, can influence consumer behavior and support decarbonization goals.
Pang et al. [39] and Steiner et al. [40] highlighted the vital role of carbon pricing in reshaping raw material supply chains. However, they realized that these transformations require addressing major institutional and governance barriers. Victor [41] analyzed global climate negotiations and identified a key challenge: the gap between international commitments and national implementation capacities. Ostrom [42] studied collective action institutions and argued that neither states nor markets alone can effectively manage public resources, while Keohane [43] examined the cooperation among capitalist countries amid weakening U.S. leadership, revealing the complexities of international climate governance. These studies stressed the need for resilient supply systems, supported by stronger governance and coordinated policies.
Grubler et al. [18] showed that the global final energy demand could fall by 40% by 2050 under low-demand scenarios. This reduction is possible without relying on negative emission technologies, supporting both the 1.5 °C target and broader sustainable development goals. Similarly, Creutzig et al. [19] emphasized the effectiveness of demand-side climate solutions. These measures can help mitigate climate change, support policy implementation, and enhance welfare outcomes. Goicoechea and Abadie [44] analyzed container shipping under the EU ETS. They found that reducing vessel speeds by 1.8–2.2 knots could cut emissions by 19–28%, while preserving profitability. This finding underscores the cross-sectoral potential of carbon pricing. Dominiak and Rusowicz [45] examined Poland’s manufacturing sector. Between 2005 and 2018, the carbon productivity index (CarPIn) improved by 55%, showing that energy-intensive industries can reduce emissions without sacrificing output. Their results provide valuable benchmarks for other coal-dependent economies undergoing energy transitions. Muth [46] studied 30 carbon pricing systems across countries. The analysis showed that hybrid policies, combining social compensation with climate investments, are most effective, especially in politically constrained settings.

2.3. Integrated Framework for Pricing and Risk

Carbon-emission policies like an ETS or a carbon tax have cascading effects on raw material markets, much like ripples in a pond. The initial regulation creates widening circles of impact through market mechanisms, including cost pass-through, investment shifts, and innovation incentives. These mechanisms have specific impacts on materials with different carbon attributes; high-carbon materials face challenges, while low-carbon materials find opportunities. In response, firms adopt various strategies, including supply chain restructuring, investment in green technologies, and substitution of materials. These corporate adaptations feed back into the policy and market systems, forming a dynamic and circular interaction.
The proposed framework, illustrated in Figure 1, shows that carbon pricing impacts raw material markets through three primary channels: cost transmission along supply chains, shifts in investment patterns, and incentives for technological innovation. These linkages reflect both the direct and indirect impacts of carbon pricing on material availability and pricing. Future research should aim to quantify these relationships across specific material categories and regional contexts.

3. Carbon Pricing Transmission Effects

3.1. Price Transmission Mechanisms

Carbon pricing has cascading effects on raw material markets through cost-push dynamics. As carbon costs increase, particularly in mining and refining activities, production expenses rise. These higher costs are then passed along the supply chain, raising the overall cost of renewable energy infrastructure. For example, Luderer et al. [47] used modeling and data analysis to show that lower renewable energy costs strongly influence electrification pathways in low-emission scenarios. Economic simulations suggested that a 10% increase in carbon prices may result in a 5–7% rise in lithium prices. Pretel and Linares [48] developed a tractable climate-economic model incorporating backstop technologies. They found that willingness-to-pay for climate mitigation decreased to 0.52% of GDP when accounting for renewable energy deployment probabilities—much lower than estimates from geoengineering-focused models, which reached 3.3% of GDP. McCollum et al. [49] utilized the MESSAGE integrated assessment model to show that stringent climate policies can promote sustainable energy development, improve air quality, reduce health impacts, and enhance energy security. These benefits could bring estimated annual savings of 100–600 billion (USD). Mercure et al. [50] used a global economic-environmental simulation model to examine the effects of stranded fossil fuel assets. They estimated global wealth losses of 1–4 trillion (USD), with uneven national impacts. However, the overall effect on global GDP remained limited. Law and Fong [51] compared China’s intensity-based ETS with South Korea’s absolute cap system. Their findings highlighted a key tradeoff between environmental effectiveness and economic flexibility in carbon market design.
Carbon pricing effects extend beyond upstream sectors to midstream and downstream industries, such as solar panel production and electric vehicle manufacturing. This transmission across sectors was supported by Creutzig et al. [52], who found that the EU ETS led to efficiency gains in German manufacturing—a midstream and downstream sector.
Price volatility in carbon markets is often amplified by non-fundamental factors. Chevallier [53] analyzed different EU ETS phases and found shifting equilibrium patterns. He noted that prices have been consistently underestimated since 2009, largely due to speculative activity. Similarly, Hintermann [54] revealed that the dominant firms in electricity markets manipulate permit prices to their advantage, creating artificial volatility.
These findings support a positive correlation between carbon pricing and raw material cost dynamics, as also evidenced by various econometric studies.

3.2. Systemic Risks Induced by Carbon Pricing

Carbon pricing can introduce systemic risks that complicate the energy transition. These risks create a challenging environment for raw material markets. Regulatory uncertainty disrupts planning, price volatility undermines investment, disclosure gaps obscure exposure, and geopolitical tensions add instability. Managing these challenges requires well-designed and adaptive policies.
One of the most critical risks is regulatory uncertainty, especially within emissions trading schemes (ETS). Unpredictable changes—such as adjustments to emissions caps or modifications to market rules—can disrupt compliance planning. Dai et al. [55] found that both European and global economic policy uncertainty exacerbated long-term volatility in the European carbon market, with global uncertainty having a stronger impact. This volatility complicates cost forecasting and planning for compliance. Additionally, Tang and Bao [56] showed that political uncertainty reduces carbon trading volume and that markets react heterogeneously, further complicating market participation and compliance strategies.
Figure 2 illustrates the substantial volatility in carbon prices across major ETS programs. Such fluctuations complicate cost forecasting and long-term investment decisions. Market speculation further distorts price signals [57], while carbon markets exhibit manipulation patterns [54] and phase-dependent equilibria [53], causing 15–25% raw material price fluctuations.
Disclosure and compliance risks affect firms with weak carbon reporting capabilities. These firms may face difficulties in accessing green financing or maintaining investor confidence. Jiang et al. [58] found that carbon disclosure positively influences firm value, is rewarded by investors, and can mitigate the valuation penalty of carbon emissions. Liesen et al. [59] reported that carbon disclosure would not only increase market efficiency but result in better allocation of capital within the real economy.
Geopolitical risks arise notably when carbon pricing varies across regions, leading to increased transaction costs and heightened vulnerability of supply chains to disruptions. Overland [60] highlighted key geopolitical concerns, including critical material competition, the resource curse, and cross-border energy insecurity, emphasizing that research should prioritize understanding risk and uncertainty over simplistic threat narratives. Supporting this perspective, Adediran and Swaray [61] demonstrated that unstable policies and geopolitical tensions amplify carbon market risks by increasing global uncertainty, which in turn raises information asymmetry and risk premiums, ultimately delaying investment decisions. Furthermore, Li et al. [62] found that geopolitical tensions tend to increase carbon emissions in high-income countries through strategic shifts in energy resource allocation, whereas in lower-income countries, similar tensions often lead to reduced energy demand and lower emissions.
Integrated risk frameworks are essential for managing these multifaceted challenges. Vulnerability indicators [63] guide risk management, though low-carbon transitions face embedded emissions constraints [64].
These findings correlate carbon pricing with raw material cost dynamics through market power [54] and geopolitical channels [60].

3.3. Macro Linkages

Macro linkages refer to the complex connections between carbon pricing and the overall economy. Carbon pricing affects energy prices, inflation, and monetary policies. These changes influence the profits of raw material sectors and market stability. Macroeconomic models highlight the need for coordinated policies to manage these linkages effectively.
Carbon pricing is closely linked to broader macroeconomic variables, including energy prices, inflation, and monetary policy. These relationships shape the effectiveness of carbon pricing tools and their impact on the raw material sector. Correlations with fossil fuel prices influence raw material profitability. Kilian [65] used a demand and supply shock decomposition model and concluded that different oil price shocks have different impacts on the macroeconomy, and they pointed out that the recent rise in oil prices was mainly driven by global demand shocks. Blanchard et al. [66] re-examined macroeconomic policy, criticized the pre-crisis consensus, and proposed preliminary ideas for a new framework. Their findings showed that energy price shocks, whether from fossil fuels or carbon, can have far-reaching macroeconomic effects. Benchora et al. [67] confirmed that carbon-intensive firms are more sensitive to monetary policy shocks, and that traditional monetary policy is not carbon-neutral and unintentionally amplifies biases related to carbon emissions.
Inflation and interest rates affect the valuation of carbon assets. These linkages, analyzed through macroeconomic models, emphasize the role of policy coordination in stabilizing markets. Anastasiou et al. [68] investigated the impact of monetary policy on firms’ carbon emissions and found that there is a positive relationship between interest rates and carbon emissions. However, Moessner [69] found that carbon pricing policies (higher carbon taxes and prices of permits in emissions trading systems) have not led to large increases in headline consumer price inflation.
From a financial perspective, carbon pricing influences investor behavior and market dynamics. Bolton and Kacperczyk [11] demonstrated that higher carbon emissions correlate with increased stock returns, indicating that investors demand compensation for carbon risk. Trück and Weron [70] found positive risk premiums in EUA futures markets, showing participants pay extra to hedge against carbon price volatility.
These macroeconomic linkages demonstrate that carbon pricing should be supported by stable and coordinated fiscal and monetary policies. This coordination is essential to promote investment stability and ensure long-term sustainable economic growth.

3.4. Carbon Pricing Efficacy for Risk Mitigation

Carbon pricing instruments such as carbon taxes, Emissions Trading Systems (ETS), and the Carbon Border Adjustment Mechanism (CBAM) are designed to mitigate risks in the raw materials sector. These tools work by promoting lower emissions and influencing the choice of materials. Each mechanism offers distinct advantages and limitations in terms of effectiveness, cost efficiency, and trade implications.
  • Carbon Taxes: A carbon tax imposes a fixed price on carbon emissions, providing firms with a predictable cost for emitting greenhouse gases. This creates a strong incentive to adopt cleaner technologies and improve production efficiency. By making carbon-intensive materials more expensive, it encourages the use of low-emission alternatives. However, its effectiveness depends on the tax rate and the availability of viable substitutes [8,71].
  • ETS: ETSs establish a market where companies can trade emission allowances. Firms can buy or sell permits depending on their abatement costs, allowing them to reduce emissions in a cost-effective manner. By increasing the cost of high-emission materials, ETSs incentivize cleaner production. The flexibility of the system comes from fluctuating permit prices, which respond to market supply and demand [8,72].
  • CBAM: A CBAM applies a tariff on carbon-intensive imports from countries with less stringent climate regulations. This helps prevent carbon leakage, where production shifts to regions with weaker environmental standards. By raising the cost of imported high-emission materials, CBAMs promote sourcing from cleaner producers and support investment in low-carbon production methods [73].
As shown in Table 3, no single carbon pricing mechanism is a perfect solution. A combination of approaches, such as an ETS with a CBAM, may be more effective. This integrated approach can better manage risks in raw material sectors, support climate targets, and maintain economic competitiveness. The optimal policy mix depends on specific conditions, including the characteristics of the industry, regional context, and political environment.

4. Financial Instruments and Risk Management Strategies

4.1. Carbon-Linked Financial Instruments

Financial innovations are increasingly being utilized to address carbon-related risks, particularly through derivatives and hedging mechanisms. Carbon futures and options, for instance, help firms hedge against price volatility, supporting better procurement and financial planning. Chevallier [10] found that carbon futures returns are weakly predictable and not strongly tied to macroeconomic factors. Nazifi [74] showed that the EUA-CER price spread is influenced by market competition, CER restrictions, and regulatory uncertainty. Policy and regulatory uncertainties remain major obstacles, highlighting the need for innovative risk-transfer mechanisms.
In a broader low-carbon policy context, Standar et al. [75] analyzed EU-funded investments in Polish metropolitan areas. Their study revealed a strong positive relationship between low-carbon investments and socioeconomic development, although no significant link was found with reductions in environmental pollution. This suggests that while green funding supports economic goals, its environmental impact may be more gradual or indirect.
Green financial products such as insurance [76] and carbon credit [77] are also playing a growing role in enterprise risk management. These instruments help firms navigate regulatory pressures and reputational risks. In doing so, they enhance long-term business resilience and support the transition to a low-carbon economy.

4.2. Corporate Strategies for Risk Mitigation

Firms are adopting a range of strategies to manage risks arising from decarbonization pressures and global uncertainty. One key strategy is supply chain diversification. Christopher [78] emphasized that well-managed logistics networks can reduce costs and increase value, making them essential for risk mitigation in volatile environments.
Improving carbon reporting and compliance practices is another strategic priority. Downar et al. [79] demonstrated the efficacy of mandatory greenhouse gas emissions disclosure, showing that firms subject to such policies achieved an approximately 8% reduction in emissions among regulated firms in Europe, with no negative impact on financial performance. This suggests that disclosure requirements can effectively influence corporate behavior. Rimmel [80] further highlighted the Global Reporting Initiative (GRI) as a key framework that has evolved into a global standard for sustainability reporting.
Some firms also employ internal carbon pricing alongside engagement with voluntary carbon markets. Research by Busch and Lewandowski [81] indicated that lower emissions often align with better financial results, with stronger correlations observed for relative emission metrics and market-based indicators. Complementing this, Schaltegger et al. [82] argued that sustainability should be viewed as a process of value co-creation involving diverse stakeholders, rather than solely shareholders.
Industry-specific responses to decarbonization have been analyzed. Vieira et al. [83] examined how European oil companies have responded to decarbonization, identifying four approaches: maintaining carbon dependence, offsetting emissions, reducing emissions, and moving toward carbon independence. They concluded that the success of these strategies depends on a strong commitment to innovation and collaboration throughout the transition. The complexities of sustainable finance were further explored by Starks [84], who discussed the divergent motivations of investors and managers, highlighting the need for further research to clarify these differing value systems. Furthermore, Yang et al. [14] showed that green finance and environmental policies significantly promote innovation in Chinese firms. Their results also indicated that this effect is stronger in firms with state ownership and under effective government governance, pointing to important roles for policy and ownership structures in driving green innovation.

5. Challenges and Future Directions

This section outlines the key challenges associated with carbon pricing mechanisms in raw material management for low-carbon energy systems and proposes future research priorities. A summary of the key challenges is presented in Table 4.
To address the complex challenges of carbon pricing and raw material supply, we propose a phased research framework:
  • Priority 1: Estimate the price elasticity of critical materials such as lithium and rare earth elements under different carbon pricing scenarios.
  • Priority 2: Develop integrated models that link material flow analysis with carbon market behavior.
  • Priority 3: Conduct long-term studies on how firms adapt to different carbon pricing policies across regions.
The economic and policy challenges of addressing global climate change are complex and interrelated. Nordhaus [12] compared quantity-based and price-based climate control strategies and concluded that price-based instruments, such as carbon taxes, offer greater flexibility and are easier to implement. Building on this, Weitzman [56] argued that uncertainty in climate policy, especially structural uncertainty, can have economic consequences greater than those caused by traditional discounting. In contrast, Pindyck [85] raised concerns about the reliability of integrated assessment models (IAMs), suggesting that their assumptions about key parameters are often arbitrary and their theoretical grounding weak. He concluded that IAMs are not suitable for accurately estimating the social cost of carbon (SCC) or guiding policy design. Complementing these views, Stern [86] emphasized the urgent need to combine sound economic analysis with immediate policy action on climate change.
Beyond macro-level policy tools, uncertainty plays a major role in corporate responses to climate risks. Trigeorgis [87] used option-pricing models to assess how firms can remain flexible when making investment decisions under uncertainty—an approach highly relevant to long-term climate investments. Similarly, Dixit and Pindyck [88] explored how uncertainty and the irreversibility of investments shape strategic decision-making, especially when firms must respond to evolving policy signals.
From a broader political economy perspective, scholars have examined how social and institutional factors interact with environmental governance. Acemoglu and Robinson [89] linked economic inequality to political instability, suggesting that unequal societies may struggle to implement effective climate policies. Rodrik [90] showed that more open economies tend to have larger governments, which may play a stabilizing role in managing external shocks, including those related to climate policy.
To better align research with real-world policy needs, we recommend a tiered research strategy:
  • Immediate-term: Analyze how raw material prices respond to changes in carbon policy (linked to Challenge 2).
  • Medium-term: Develop models for integrating carbon and commodity markets across borders (linked to Challenge 1).
  • Long-term: Assess enterprise resilience strategies under evolving regulations (linked to Challenge 4).
This tiered framework ensures that research findings are both policy-relevant and methodologically adaptable over time.
Understanding the complex challenges of climate change and sustainability requires giving attention to key areas such as the economic impacts of warming, supply chain transformation, and corporate resilience. Empirical work by Auffhammer and Schlenker [91] showed that climate change directly affects agriculture, disrupting critical supply chains. At the macro level, Burke et al. [92] found that global economic output would peak at around 13 °C, with higher temperatures linked to sharp declines in income. This highlights the broader economic risks climate change poses to firms and their long-term stability.
In addition to direct impacts, environmental policy design and corporate strategy play important roles in shaping outcomes. Bovenberg and Goulder [13] stressed the need to consider tax interactions when designing environmental regulations, to maintain economic efficiency. From a strategic standpoint, Porter and Van der Linde [93] argued that strict environmental regulations can stimulate innovation and improve competitiveness. Hart [94] further emphasized that sustainability strategies, such as pollution prevention and product stewardship, can offer long-term advantages by strengthening corporate resilience.
The challenges of building resilient supply chains are also influenced by the spatial dimensions of the low-carbon transition. Bridge et al. [95] examined the United Kingdom’s energy transition using six spatial frameworks and found that the future layout of the low-carbon economy remains uncertain and may follow various paths. Their study highlighted the need for interdisciplinary approaches to understand and manage the geographic and structural shifts required for sustainable supply chains.

6. Conclusions

The global shift toward low-carbon energy systems is inextricably linked to the supply of critical raw materials such as lithium, cobalt, copper, and rare earth elements. This review has systematically examined the complex and often conflicting relationship between the growing implementation of carbon pricing mechanisms and the markets for these essential materials. It drew on studies such as Schmuch et al. [5] on battery materials, Olivetti et al. [1] on supply chain constraints, and Mertens et al. [17] on mitigation pathways in renewable technologies. The review shows that carbon pricing changes the risk landscape by influencing environmental trade-offs, economic resilience, innovation, and corporate behavior, as discussed in Section 2, Section 3 and Section 4. It highlights major challenges including policy uncertainty, market volatility, and geopolitical risks. While existing research supports the idea that coordinated policies can improve sustainability, it also points to weaknesses in global governance and the need for more integrated solutions to align carbon goals with supply chain stability.
The main conclusion of this review is that a fragmented approach to carbon pricing is insufficient to manage the intricate risks involved. A successful and sustainable energy transition requires international cooperation and stronger, more flexible risk management frameworks. Future research must focus on quantifying the cross-elasticities between carbon prices and material costs, developing integrated assessment models, and conducting long-term studies on corporate adaptation. By bridging the gap between policy goals and market realities, stakeholders can build the resilient and sustainable raw material supply chains that are fundamental to securing a low-carbon future.

Author Contributions

Conceptualization, C.L.; Resources and writing draft, X.Z.; writing—original draft preparation, H.S.; supervision, and funding acquisition. C.L. All authors have read and agreed to the published version of the manuscript.

Funding

This research was funded by the National Natural Science Foundation of China under Grant No. 72210107001, the Beijing Natural Science Foundation under Grant No. IS23128, the Fundamental Research Funds for the Central Universities, and the CAS PIFI International Outstanding Team Project (Grant No. 2024PG0013).

Conflicts of Interest

The authors declare no conflicts of interest.

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Figure 1. An integrated framework for carbon pricing and material risk.
Figure 1. An integrated framework for carbon pricing and material risk.
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Figure 2. Historical trends in carbon prices under selected ETS systems (EU ETS, China ETS, California Cap-and-Trade) (Data source: https://icapcarbonaction.com/en/ets-prices, accessed on 5 May 2025).
Figure 2. Historical trends in carbon prices under selected ETS systems (EU ETS, China ETS, California Cap-and-Trade) (Data source: https://icapcarbonaction.com/en/ets-prices, accessed on 5 May 2025).
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Table 1. Key raw materials for low-carbon technologies and associated risk dimensions.
Table 1. Key raw materials for low-carbon technologies and associated risk dimensions.
MaterialApplicationsSupply RiskPrice VolatilityCarbon Footprint
LithiumBatteries for electric vehicles and energy storageHighMediumHigh
CobaltBattery cathodes in electric vehiclesVery HighHighVery High
NickelBattery components, industrial alloysHighHighHigh
Rare EarthsPermanent magnets for wind turbines and motorsHighMediumMedium
CopperElectrical wiring and power infrastructureMediumMediumMedium
AluminumSolar panel frames and lightweight structuresMediumHighHigh
Table 3. Comparative analysis of carbon pricing mechanisms.
Table 3. Comparative analysis of carbon pricing mechanisms.
Policy AspectCarbon TaxETSCBAM
CostFixed and predictable carbon costCost varies by market pricesAdds cost to imported goods based on emissions
Effect on IndustryEncourages cleaner technologyEncourages cleaner technologyProtects local industries from carbon-heavy imports
Political FeasibilityFaces opposition over economic effectsFaces opposition over economic effectsFaces challenges over trade and developing countries
Impact on Developing CountriesLess direct effectLess direct effectRaises concerns for exporters of carbon-heavy goods
Table 4. Key challenges in implementing effective carbon pricing and risk management.
Table 4. Key challenges in implementing effective carbon pricing and risk management.
ChallengeDescription
Absence of a unified global carbon pricing systemCreates complexity in managing cross-border supply chains and harmonizing cost structures
High volatility in carbon marketsReduces the reliability of carbon price signals for long-term investment decisions
Limited maturity of risk assessment modelsHighlights the need for more advanced simulation tools and data-driven frameworks
Misalignment between policy development and market dynamicsLeads to regulatory delays that hinder timely responses to carbon-related risks
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Sun, H.; Zhang, X.; Luo, C. A Review of Carbon Pricing Mechanisms and Risk Management for Raw Materials in Low-Carbon Energy Systems. Energies 2025, 18, 3401. https://doi.org/10.3390/en18133401

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Sun H, Zhang X, Luo C. A Review of Carbon Pricing Mechanisms and Risk Management for Raw Materials in Low-Carbon Energy Systems. Energies. 2025; 18(13):3401. https://doi.org/10.3390/en18133401

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Sun, Hongbo, Xinting Zhang, and Cuicui Luo. 2025. "A Review of Carbon Pricing Mechanisms and Risk Management for Raw Materials in Low-Carbon Energy Systems" Energies 18, no. 13: 3401. https://doi.org/10.3390/en18133401

APA Style

Sun, H., Zhang, X., & Luo, C. (2025). A Review of Carbon Pricing Mechanisms and Risk Management for Raw Materials in Low-Carbon Energy Systems. Energies, 18(13), 3401. https://doi.org/10.3390/en18133401

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