Carbon emission trading

"Carbon market" redirects here. For the market in Cebu City, Philippines, see Carbon Market.

Allowance prices for carbon emission trade in all major emission trading schemes in Euro per ton of CO2 emitted (from 2008 until August 2024)

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). A form of carbon pricing, its purpose is to limit climate change by creating a market with limited allowances for emissions. Carbon emissions trading is a common method that countries use to attempt to meet their pledges under the Paris Agreement, with schemes operational in China, the European Union, and other countries.[1]

Emissions trading sets a quantitative total limit on the emissions produced by all participating emitters, which correspondingly determines the prices of emissions. Under emission trading, a polluter having more emissions than their quota has to purchase the right to emit more from emitters with fewer emissions. This can reduce the competitiveness of fossil fuels, which are the main driver of climate change. Instead, carbon emissions trading may accelerate investments into renewable energy, such as wind power and solar power.[2]: 12 

However, such schemes are usually not harmonized with defined carbon budgets that are required to maintain global warming below the critical thresholds of 1.5 °C or "well below" 2 °C, with oversupply leading to low prices of allowances with almost no effect on fossil fuel combustion.[3] Emission trade allowances currently cover a wide price range from €7 per tonne of CO2 in China's national carbon trading scheme[4] to €63 per tonne of CO2 in the EU-ETS (as of September 2021).[5]

Other greenhouse gases can also be traded but are quoted as standard multiples of carbon dioxide with respect to their global warming potential.

  1. ^ "Emissions Trading Worldwide: Status Report 2021". Berlin: International Carbon Action Partnership (ICAP). Retrieved August 8, 2021.
  2. ^ 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.
  3. ^ "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.
  4. ^ Yuan, Lin (July 22, 2021). "China's national carbon market exceeds expectations". Archived from the original on November 4, 2022. Retrieved August 8, 2021.
  5. ^ "Carbon Price Viewer". EMBER. Archived from the original on March 2, 2023. Retrieved August 8, 2021.