Carbon pricing is an effective policy instrument to reduce greenhouse gas emission. Carbon pricing is based on polluter pay principle that a carbon emitter pays price to cut the emissions. Polluters have decision making power to cut their emissions and avoid carbon price for their production. Carbon pricing policy discourages carbon emissions and encourages divestment to clean energy options. Carbon emitted at one place of the world will have impacts on every parts of the world. Wider participation of governments of the world and implementation is necessary to cut the emissions.
Carbon pricing can be emission trading system (ETS) or carbon taxes. Tradable individual emission quotas or cap and trade system creates a business environment of carbon emission supply and demand. Companies will have individual quotas for maximum carbon emission which they can utilize or sell to another company based on their requirements in emission trading system. In contrast, carbon tax is direct costs to greenhouse gas emission. Complexities may arise in the implementation of both carbon pricing system. Cost effectiveness of regulating international cap and trade system needs to be reviewed. Further, carbon pricing will be less effective if it is not implemented globally and it has been referred it as ‘carbon leakage’.
States and cities across the world have been planning, acting and implementing carbon pricing schemes. Fixed price tag from July 2012 and trading scheme from July 2014 has been applied in Australia and cap and trade system in New Zealand and carbon tax in Switzerland has been operated since 2008. China is planning to create a national emission trading system in 2016 with a 40 to 45 percent emission reduction goal by 2020 compared to 2005 levels. China already covered 1115 megatons of carbon dioxide emissions with regional cap and trade schemes. Carbon tax is starting in Chile in 2018, ETS was started in South Korea in January 2015 and European Union covered 11000 power stations and industrial plants including airlines with international emission trading .
Various initiatives and private sectors across the world have been engaged with carbon pricing. Twenty-nine major US companies including Dow Chemical Company, Bank of America and Exxon Mobil are pricing carbon, 496 global companies are part of global carbon trading scheme and global companies such as Alstrom, Bayer and Canadian Tire Corporation operating in China and South Korea have agreed Chinese emission trading schemes. EU ETS have covered companies such as Lafarge and Rockwool international and 212 companies are negotiating with policy makers on carbon pricing.
Globally, governments and environmental leaders are operating to achieve two degree Celsius temperature target however carbon pricing policy won’t be sufficient. Carbon pricing policy acting together with other policies will likely to make a difference. Carbon pricing policy will be more effective if it focuses on green innovations rather than just taxing. Universal application of the carbon price schemes is most desirable to achieve the environmental goals.