Carbon pricing: Mechanisms & Carbon valuation tools

Carbon pricing Mechanisms Carbon valuation tools 1

Climate change is one of the biggest challenges humanity is facing today. The impacts of climate change are becoming increasingly evident, including: rising sea levels, rising temperatures, extreme weather phenomena… To respond to this challenge, countries The world is making efforts to reduce greenhouse gas (GHG) emissions .

Carbon pricing is an important tool in the fight against climate change. It helps influence the behavior of emitters, encourage a transition to clean energy sources , and mitigate the impact of climate change.

Overview of carbon pricing

Carbon pricing is a mechanism by which costs and damages caused by GHG emissions (such as crop damage, health care costs due to extreme climate events, etc.) will be priced. and transfer the burden and damage caused by GHG emissions back to the sources that cause the emissions. This valuation can be expressed in the form of a carbon tax , a credit scheme, emissions offsets or a carbon trading system .

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Carbon pricing tools can be classified according to the following criteria:

  • By level of application: Carbon pricing tools can be applied at the national, regional or corporate level.
  • By method of application: Carbon pricing tools can be applied in a direct or indirect manner.
  • By application objective: Carbon pricing tools can be applied with the objective of reducing emissions, mobilizing resources, or both.

Key carbon pricing tools

Key carbon pricing tools will include:

Carbon tax

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A carbon tax is a tax applied to sources of GHG emissions. This tax can be calculated per ton of GHG emissions or per unit of energy.

Carbon taxes are a popular and effective carbon pricing tool. It can help influence the behavior of emitters, encourage a transition to clean energy sources, and reduce GHG emissions.

The government will introduce a fixed carbon tax price and clearly defined tax increase roadmap as well as tax rate adjustment rules.

Credit and emission offset mechanism

The credit mechanism, also known as emissions offsets, is a carbon pricing tool that allows organizations to mitigate the impact of their GHG emissions by investing in projects that reduce emissions elsewhere .

This is a flexible mechanism that provides a solution for a country, organization or emitter to reduce its emissions. Specifically, how does the credit mechanism work?

  • GHG emitters can purchase credits from emissions reduction projects.
  • Each credit represents one ton of GHGs mitigated by the project.
  • Organizations that purchase the credits can use them to offset their own emissions.

Emissions trading system

An emissions trading system (ETS) is a market instrument used to control and gradually reduce greenhouse gas (GHG) emissions in certain industries, sectors or across the entire economy. ETS operates on the principle of “set limit (Cap) and trade (Trade)”.

The importance of carbon pricing

Carbon pricing tools play an important role in implementing goals of reducing GHG emissions, responding to climate change and sustainable development at lower costs. They encourage businesses to flexibly invest in advanced, energy-saving and low-emission technologies to ensure benefits and competitiveness, while mobilizing social resources to invest back in their businesses. social change response activities, helping to reduce social burdens, creating environmental, health, economic and social co-benefits.

Additionally, carbon pricing tools have several important benefits:

  • Influencing the behavior of emitters: Carbon pricing makes emissions more expensive. This will encourage emitters to look for ways to reduce emissions.
  • Encourage the transition to clean energy sources: Carbon pricing will make clean energy sources more competitive with traditional energy sources. This will promote the development of clean energy sources, contributing to reducing GHG emissions.
  • Mitigate the impact of climate change: Carbon pricing will help mitigate the impact of climate change by reducing GHG emissions.

Trends in the development of carbon pricing tools

According to the bulletin “Policy: Natural Resources – Environment – Sustainable Development” (Center for People and Nature, No. 33/2023), as of April 2022, there are a total of 68 carbon pricing tools in operation. 3 tools are being planned for implementation. These include 37 carbon taxes and 34 emissions trading systems.

Many countries and territories are applying mixed tools, such as New Zealand or the European Union applying both carbon tax and ETS tools.

According to World Bank statistics, currently up to 23% of total global emissions are being priced and controlled by carbon tools. The distribution of carbon pricing tools is shown as shown below:

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Carbon pricing is an important and necessary tool in the fight against climate change. It can help influence the behavior of emitters, encourage a transition to clean energy sources, and mitigate the impact of climate change.

For carbon pricing to be effective, close coordination between stakeholders, including governments, businesses and consumers, is needed. The government needs to develop appropriate policies to promote the application of carbon pricing. Businesses need to proactively seek solutions to reduce emissions to reduce costs and improve competitiveness. Consumers need to change their consumption habits to minimize the impact of climate change.

Countries, businesses and organizations need to promote the application of carbon pricing to contribute to reducing GHG emissions and protecting the environment. This is one of the important solutions to respond to the challenge of climate change, contributing to building a sustainable future for humanity.