Carbon pricing applies market-based mechnisms to accelerate the transition towards a low carbon future. The main idea behind the aspect of carbon pricing is the “polluter pays” principle. Putting a price on carbon implies that the organizations and businesses which are responsible for emitting greenhouse gases into the atmosphere are also held accountable for their activities.
External costs, such as air pollution, increasing temperatures or biodiversity loss, are therewith internalized through a price on carbon. Carbon pricing therewith incentivizes polluters to reduce emissions.
Carbon pricing through emissions trading schemes
Using market meachnisms to mitigate climate change is no longer just a theoretical concept. Everywhere around the world, there are different stages and forms of carbon pricing. The most famous one may be the EU Emissions Trading Scheme. It is the first cross-border and as of now the largest emissions trading scheme in the world.
The system is based on the fact that every market actor must submit a valid certificate for each ton of CO2 emitted. At the same time, there is only a limited quantity (a “cap”) of new certificates per year. Phase IV of the EU ETS is starting next year, whereas the emission ceiling will be reduced by 2.2% annually.
Potential benefits of carbon pricing
The impacts of carbon pricing should not be underestimated. Mark Lewis, Managing Director at European Utilities Equity Research, states: “In my view, central to any such scenario analysis should be gauging the impact of carbon pricing on company business models. Over time capital will be re-allocated in accordance with carbon-pricing signals.”
Climate change and increasing prices on carbon therewith become both a key risk and opportunity for many businesses. The benefits of carbon pricing can be significant. It has the potential to become one of the strongest policy instruments available for tackling climate change. Furthermore, it can redirect the behavior of businesses and investors in such a way to decarbonize the world’s economy. In summary, well-designed carbon prices offer triple benefits: they protect the environment, drive investments in clean technologies, and raise government revenue.
Want to know more about carbon pricing and how you can use it for your business? Since 1999, DFGE experts have been providing support in the calculation of greenhouse gas balances for companies or individual products. DFGE’s top-down approach enables a quick and cost-effective determination of greenhouse gas emissions.
We are happy to help you in this area – simply contact us by email at or by phone at 08192 99733 20.