Definition:
A market-based mechanism that assigns a cost to carbon emissions to incentivize lower-carbon energy production and grid modernization.
Key Components:
- Carbon Taxes: Direct charges on emissions to discourage fossil fuel use.
- Cap-and-Trade Systems: Sets emission limits and allows companies to trade carbon credits.
- Carbon Offsets: Companies invest in emission-reduction projects to compensate for their emissions.
Use Cases/Industries:
- Electric Power Generation: Encourages utilities to transition to cleaner energy sources.
- Industrial Manufacturing: Reduces carbon footprints in high-emission sectors.
- Transportation: Promotes low-carbon fuels and electric vehicle adoption.
Advantages:
- Drives Emission Reductions: Creates financial incentives for cleaner energy.
- Funds Climate Initiatives: Generates revenue for sustainability projects.
- Encourages Technological Innovation: Promotes low-carbon solutions.
Challenges:
- Economic Impact: Can increase costs for businesses and consumers.
- Global Disparities: Varying policies create competitive imbalances.
Related Terms: Carbon Markets, Emission Trading, Climate Policy
Example:
A national carbon pricing program led to a 25% decrease in coal-fired power generation over five years.
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Synonyms:
Carbon Costing, Greenhouse Gas Pricing, Emission Taxation
