Limiting emissions of CO2 and other greenhouse gases (GHGs) is vital in order to reduce the risks of major future changes to the climate. In this context, “carbon pricing” is a central issue. However, this term can have several different meanings:
• Placing an explicit price on GHG emissions, either by establishing taxes on the carbon content of various fuels or on the emissions of other GHGs, or by setting up an emission trading system where the price of GHG emission allowances represent the “carbon price”.
• Placing an implicit price on carbon following the application of any other type of policy instrument that has an intended or unintended impact on GHG emissions.
• Placing a negative price on carbon, i.e. subsidising actions that lead to emissions of carbon dioxides in the form of subsidies or support to fossil-fuel production or use.
