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National and regional markets

The at times extremely difficult situation in the global carbon market has not resulted in carbon pricing instruments becoming less attractive at national level. On the contrary. Even in the run up to the Paris climate conference, when the global carbon market was laden with uncertainty, an increasing number of countries and regions planned to introduce their own emissions trading schemes or already had them in place. It seems that carbon pricing is also increasingly being seen as an attractive climate change mitigation tool outside the framework of the international regime. Therefore, in recent years, more and more carbon pricing instruments have been introduced: according to World Bank estimates, more that 20 percent of global greenhouse emissions are now covered by a price for CO2.

At national level, putting a price on carbon and other greenhouse gases can occur either through the introduction of taxation (a carbon tax) or through the creation of an emissions trading scheme (ETS). A carbon tax determines the price per tonne of CO2e emitted. In the case of an emissions trading scheme, the total quantity of greenhouse gas emissions is capped and a corresponding number of emission certificates issued. Emitters must prove that they possess certificates for the greenhouse gas emissions they cause. The certificates are either issued to companies free of charge or they must be acquired by auction from a centralised organisation. Unused certificates may be traded. This puts a price on greenhouse gas emissions. That price is not politically determined, however, but is instead generated by supply of and demand for certificates on the carbon market.

In addition to emissions trading schemes and carbon taxes, in recent years many different carbon pricing instruments have been developed which fall into neither category. These include the baseline and credit system introduced in the Province of British Columbia in Canada, and the Australian Safeguard Mechanism, which can be described as a baseline and offset system. The diagram below gives an overview of the different carbon pricing instruments that have either been implemented or are in the planning stage.

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