Carbon Pricing and Coverage Around the World
Carbon pricing is a policy instrument used to reduce greenhouse gas emissions by putting a price on carbon dioxide emissions. The most common forms of carbon pricing are carbon taxes and cap-and-trade systems. Carbon taxes place a direct price on emissions by setting a tax rate on the amount of carbon dioxide emitted by a particular source. Cap-and-trade systems, on the other hand, set a limit on the total amount of emissions that can be emitted, and companies that emit less than their allotted amount can sell or trade their unused allowance to companies that emit more than their allotted amount.
While many countries have adopted carbon pricing schemes, there is still a wide range of coverage and pricing between countries and jurisdictions.
Different types of schemes:
- Carbon taxes: Carbon taxes make emitting more expensive by adding a cost to every tonne emitted. It directly adds a cost by defining a tax rate on greenhouse gases.
- Emissions trading scheme: Often referred to as a cap-and-trade system, a jurisdiction will set a cap on emission and companies will buy and sell credits to meet emissions goals.
Carbon pricing has been implemented in several countries and regions around the world, including the European Union, Canada, and regions of the United States.
- The European Union’s Emissions Trading System (EU ETS) is the world’s largest carbon market and covers over 11,000 power plants and industrial facilities in 30 countries.
- Canada has implemented a federal carbon pricing system, and several provinces have implemented their own carbon pricing systems.
- In the United States, California has a cap-and-trade program, and several Northeastern states have a Regional Greenhouse Gas Initiative (RGGI) cap-and-trade program.
However, not all countries have implemented carbon pricing, and some have taken different approaches to reducing emissions. For example, in the United States, many states have implemented renewable portfolio standards, which require a certain percentage of electricity to be generated from renewable sources, rather than carbon pricing.