An approach to limit climate change by creating a market with limited allowances for CO2 emissions
"Carbon market" redirects here. For the market in Cebu City, Philippines, see Carbon Market.
Carbon emission trade allowance prices in all major emission trading schemes in Euro per ton of CO2 emitted (from 2008 until 5/2023)
Carbon emission trading (also called carbon market, emission trading scheme (ETS) or cap and trade) is a type of emissions trading scheme designed for carbon dioxide (CO2) and other greenhouse gases (GHGs). It is a form of carbon pricing. Its purpose is to limit climate change by creating a market with limited allowances for emissions. This can reduce the competitiveness of fossil fuels, and instead accelerate investments into renewable energy, such as wind power and solar power. Fossil fuels are the main driver for climate change. They account for 89% of all CO2 emissions and 68% of all GHG emissions.[1]: 12
Emissions trading sets a quantitative total limit on the emissions produced by all participating emitters. As a result, the price automatically adjusts to this target. This is the main advantage compared to a fixed carbon tax. Under emission trading, a polluter having more emissions than their quota has to purchase the right to emit more. The entity having fewer emissions sells the right to emit carbon to other entities. As a result, the most cost-effective carbon reduction methods would be exploited first. Carbon emissions trading and carbon taxes are a common method for countries in their attempts to meet their pledges under the Paris Agreement.
Carbon emissions trading schemes are in operation in China, the European Union, and other countries.[2] However, they are usually not harmonized with any defined carbon budgets, which are required to maintain global warming below the critical thresholds of 1.5 °C or "well below" 2 °C. The existing schemes only cover a limited scope of emissions. The EU-ETS focuses on industry and large power generation, leaving the introduction of additional schemes for transport and private consumption to the member states. Though units are counted in tonnes of carbon dioxide equivalent, other potent GHGs such as methane (CH4) or nitrous oxide (N2O) from agriculture are usually not part these schemes yet. Apart from that, an oversupply leads to low prices of allowances with almost no effect on fossil fuel combustion.[3] In September 2021, emission trade allowances (ETAs) covered a wide price range from €7/tCO2 in China's new national carbon market[4] to €63/tCO2 in the EU-ETS.[5] Latest models of the social cost of carbon calculate a damage of more than $3000 per ton CO2 as a result of economy feedbacks and falling global GDP growth rates, while policy recommendations range from about $50 to $200.[6][failed verification]
^Olivier, J.G.J.; Peters, J.A.H.W. (2020). "Trends in global CO2 and total greenhouse gas emissions (2020)" (PDF). The Hague: PBL Netherlands Environmental Assessment Agency.
^"Emissions Trading Worldwide: Status Report 2021". Berlin: International Carbon Action Partnership (ICAP). Retrieved August 8, 2021.
^"Policy Brief: EU emissions trading". Mercator Research Institute on Global Commons and Climate Change. Archived from the original on March 2, 2022. Retrieved August 8, 2021.
^Yuan, Lin (July 22, 2021). "China's national carbon market exceeds expectations". Archived from the original on November 4, 2022. Retrieved August 8, 2021.
^"Carbon Price Viewer". EMBER. Archived from the original on March 2, 2023. Retrieved August 8, 2021.
^Kikstra, Jarmo S; Waidelich, Paul; Rising, James; Yumashev, Dmitry; Hope, Chris; Brierley, Chris M (September 6, 2021). "The social cost of carbon dioxide under climate-economy feedbacks and temperature variability". Environmental Research Letters. 16 (9): 094037. Bibcode:2021ERL....16i4037K. doi:10.1088/1748-9326/ac1d0b. S2CID 237427400.
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