Carbon pricing uses the market to ensure that the “polluter pays” for greenhouse gas emissions. A price is put on carbon – set by governments – and businesses which emit carbon pay for every tonne. The belief is that it creates a financial incentive to reduce greenhouse gas emissions.
The price will depend on the priority placed on climate change by governments (for example, President Biden recently increased carbon to an interim figure of $51 per tonne, up from President Trump’s $8 per tonne). And the concept will only work if the price of carbon is high enough to deter companies from emitting greenhouse gases, and incentivise them to adopt lower-carbon behaviour.