Carbon pricing

The polluter-pays principle is a fundamental tenet of environmental pricing policy to ensure that damage inflicted by an activity is reflected in the cost of doing business. Carbon pricing is the implementation of the polluter pays principle for greenhouse gases, usually in the form of either a carbon tax or a requirement to purchase permits to pollute, commonly referred to as a cap and trade or emissions trading scheme.

A robust, predictable and rising carbon price is needed to reflect the true cost on society of greenhouse gas emissions. We need a clear signal to industry to reduce pollution more rapidly, invest in climate-friendly alternatives, and spur further low-carbon innovation.

More and more countries have started to price carbon through cap and trade systems or a carbon tax as an incentive to reduce pollution, but the majority of carbon prices around the world are too low to reduce emissions fast enough to limit global warming to safe levels.

If implemented correctly, carbon pricing can offer significant co-benefits including reducing air pollutants, generating revenues for climate measures and a just transition, fighting energy poverty or reducing other taxes. 

Carbon Market Watch follows carbon pricing developments across the world, uncovers policy loopholes and advocates for strong carbon pricing measures as part of the policy mix to address the climate crisis.