Use the Index to Rapidly Navigate the Climate Web
Market Mechanism EntryPoints
Here are 15 approaches to carbon pricing:
- Carbon tax: A carbon tax is a direct tax on carbon emissions, which incentivizes individuals and companies to reduce their carbon footprint by increasing the cost of carbon-intensive activities.
- Emissions trading system (ETS): An ETS sets a limit on the total amount of emissions allowed in a given period, and creates a market for trading permits that allow the holder to emit a certain amount of greenhouse gases.
- Cap-and-trade: Similar to an ETS, cap-and-trade sets a limit on emissions, but instead of permits, companies receive a certain number of allowances that they can trade with other companies.
- Fee-and-dividend: Under this approach, a fee is placed on the production or consumption of fossil fuels, and the revenue generated is returned to citizens as a dividend, thus incentivizing them to reduce their carbon footprint.
- Output-based pricing: This approach puts a price on the emissions intensity of industrial processes, rather than the total emissions of a facility.
- Border carbon adjustment: A border carbon adjustment places a carbon price on imports based on their carbon footprint, ensuring that foreign producers face the same costs as domestic producers.
- International carbon pricing collaboration: Countries can collaborate to establish a common carbon price or create a global carbon market that applies to all countries and sectors.
- Green bonds: Green bonds are financial instruments that are issued to finance projects that promote the reduction of greenhouse gas emissions or adaptation to climate change.
- Carbon offsets: Individuals or companies can purchase carbon offsets, which represent a reduction in greenhouse gas emissions from a project elsewhere, to offset their own emissions.
- Performance standards: Governments can set performance standards for emissions intensity, energy efficiency, or other measures, and require companies to meet those standards or pay a penalty.
- Tradable energy efficiency certificates (TEECs): Similar to carbon credits, TEECs can be earned by companies that exceed energy efficiency standards, and traded with companies that are struggling to meet those standards.
- Green tariffs: Green tariffs are special tariffs that incentivize renewable energy production and penalize carbon-intensive production.
- Carbon pricing for transportation: This approach can include taxes on fuel or road usage charges that reflect the carbon intensity of the transportation mode.
- Carbon pricing for agriculture: Policies such as carbon taxes, carbon credits, or subsidies can incentivize the reduction of greenhouse gas emissions in the agricultural sector.
- Carbon pricing for aviation and shipping: The international aviation and shipping sectors can be subject to a carbon pricing mechanism, such as a carbon tax or an ETS.