As the world scrambles to fight climate change, carbon pricing has emerged as one of the most effective tools to cut down greenhouse gas emissions. But what is it?
Simply put, carbon pricing puts a financial cost on emitting carbon dioxide, pushing polluters to either pay up or clean up. Whether it’s a factory or a fuel company, if you pollute, you pay — it’s that simple. This “polluter pays” model not only discourages emissions but also encourages cleaner technologies and fuels.
There are two key ways countries apply carbon pricing:
Carbon Tax: Governments directly tax fossil fuels based on their carbon content. The dirtier the fuel, the higher the tax. Sweden is a leading example, with one of the highest carbon taxes ($130 per tonne of CO₂) and a strong record in cutting emissions while keeping its economy strong.
Cap-and-Trade (Emissions Trading System - ETS): The government sets a cap on total emissions and gives companies permits to pollute. If a company emits less than its limit, it can sell unused permits. If it exceeds the limit, it must buy more. This system creates a carbon market. The EU ETS is the most successful example, covering over 11,000 power plants and factories.
Carbon pricing is catching on fast. Over 70 countries, including Canada, China, Japan, South Korea, New Zealand, UK, and South Africa, have adopted carbon pricing policies in some form. As of now, about 23% of global emissions are covered under carbon pricing mechanisms. The global value of these systems exceeds $100 billion annually.
The Paris Agreement’s Article 6 also promotes international carbon trading, allowing countries to share emission reductions, boosting the development of carbon markets worldwide.
India, the world’s third-largest carbon emitter, is also stepping up. With climate concerns growing and global pressure rising, India is building its own carbon market under the Carbon Credit Trading Scheme (CCTS).
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This includes:
A compliance system for industries bound to meet emission reduction targets.
A voluntary offset system that rewards extra efforts to cut emissions.
India is also developing a Rate-based Emissions Trading System — a flexible model where companies are judged against performance benchmarks, not fixed emission caps. This allows for growth while still encouraging cleaner operations.
The Indian Carbon Market (ICM) is being structured to support long-term goals like decarbonization, innovation, and sustainable development.
Carbon pricing is no longer just for developed nations. It’s now a mainstream climate solution, and India is positioning itself as a global leader in this space. From cutting emissions to financing green innovation, the journey is just beginning.
With the right support, strong policies, and public-private cooperation, carbon pricing could be the game-changer the planet desperately needs.
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