US adopts ‘carbon pricing’
Recently, the Climate Change Panel has praised carbon pricing.
The United Nations Intergovernmental Panel on Climate Change (IPCC) has called carbon pricing the most powerful and efficient strategy currently available to reduce emissions.
- The state of Pennsylvania in the United States has adopted a carbon pricing policy to combat climate change. It has become the first major fossil fuel producing state in the US to do so.
- It joins 11 states where coal, oil and natural gas fueled power plants must buy credits for every ton of carbon dioxide they emit.
- America is providing for the social cost of carbon. The social cost of carbon calculates future climate losses to justify tighter restrictions on polluting industries.
- Carbon pricing is a way to reduce carbon emissions (greenhouse gas emissions). It uses the market mechanism to impose the cost of emissions on the emitter itself.
- This arrangement reflects how much companies are willing to pay for a limited amount of emissions credits to be offered at auction.
Types of Carbon Pricing
- Emissions Trading System (ETS): It is also known as cap-and-trade system. Under this, the total limit of greenhouse gas emissions is fixed. This allows low-emission industries to sell their excess emissions savings to larger emitters.
- Carbon Tax: In this system, a direct price is imposed on greenhouse gas emissions. Under this, an economic agent has to pay for every ton of carbon pollution emitted.
Source – The Hindu