What is carbon pricing?
The Carbon Pricing Leadership Coalition defines carbon pricing as an approach to reduce carbon emissions (GHG emissions), that uses market mechanisms to pass the cost of emitting on to emitters. Its broad goal is to discourage the use of fossil fuels in order to protect the environment, address the causes of climate change, and meet national and international climate agreements. Putting a price on carbon, the society can hold emitters responsible for adding GHG emissions to the atmosphere.
It is a strong policy instrument for tackling climate change. It has the potential to decarbonize the world’s economic activity by changing the behavior of consumers, businesses, and investors while unleashing technological innovation and generating revenues that can be put to productive use.
Carbon pricing instruments can take different forms:
- Carbon tax
- Emission trading system (ETS)
- Crediting mechanism
- Results-based climate finance (RBCF)
- Internal carbon pricing (Shadow price & Internal carbon fee)
For further information on the different systems visit: Carbon Pricing Leadership Coalition
What is an ETS?
An emission trading system (ETS)—also known as a cap-and-trade system—sets a limit (“cap”) on total direct GHG emissions from specific sectors and sets up a market where the rights to emit (in the form of carbon permits or allowances) are traded. This approach allows polluters to meet emissions reductions targets flexibly and at the lowest cost. It provides certainty about emissions reductions, but not the price for emitting, which fluctuates with the market.
Countries with ETS in force
- Canada – Nova Scotia
- Canada – Québec Cap-and-Trade System
- China – Beijing pilot ETS
- China – Chongqing pilot ETS
- China – Fujian pilot ETS
- China – Guangdong pilot ETS
- China – Hubei pilot ETS
- China – Shanghai pilot ETS
- China – Shenzhen pilot ETS
- China – Tianjin pilot ETS
- EU Emissions Trading System (EU ETS)
- Japan – Saitama Target Setting Emissions Trading System
- Japan – Tokyo Cap-and-Trade Program
- Kazakhstan Emissions Trading Scheme
- Korea Emissions Trading Scheme
- New Zealand Emissions Trading Scheme
- Swiss ETS
- USA – California Cap-and-Trade Program
- USA – Massachusetts Limits on Emissions from Electricity Generators
- USA – Regional Greenhouse Gas Initiative (RGGI)
Countries with ETS implementation scheduled
- China National ETS
- German National ETS
- USA – New Jersey
- USA – Pennsylvania
- USA – Virginia