Carbon trading is an application of an emissions trading approach.
Greenhouse gas emissions are capped and then markets are used to allocate the emissions among the group of regulated sources.
This approach is designed to allow market mechanisms to drive industrial and commercial processes in the direction of low emissions or less carbon intensive solutions.
- Price to pollute needs to rise
- "At a webinar hosted by the Bank of England, Sarah Breeden, who leads the Bank’s work on climate-related risks, said the cost of pollution allowances will need to rise significantly in order to achieve targets in the Paris Agreement to limit global warming to below 2 degrees Celsius.
- Carbon prices may even exceed $100 [a ton] if the transition to a low carbon economy is abrupt, or bumpy, she said.
- The current price to pollute in the European Union is around 33 euro ($40) a ton.
- 'I do think if risk is priced [appropriately] it will drive the right behaviours,' said Breeden."
- Association of Corporate Treasurers ESG blog, Naresh Aggarwal, Associate Director, Policy & Technical, 21 January 2021