Combating Climate Change with Carbon Pricing

Abstract

Carbon pricing is one of the best ways to combat climate change by shifting external costs of greenhouse gases from the public to the polluter. There are two main types of carbon pricing: carbon tax and emissions trading systems (ETS) which uses market-based mechanism. A carbon market is created from the trading of carbon emission allowances or carbon credits from emissions reduction projects. Two types of carbon market exist; the regulatory compliance and the voluntary markets. Carbon pricing, especially carbon market, is an efficient way to reduce greenhouse gas emissions while enabling the overall environmental goal to be achieved in the most flexible and least-cost way to society. The carbon price also stimulates clean technology and market innovation, sustainable and robust economic growth.