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Carbon Pricing approach

  • Vaid's ICS, Lucknow
  • 02, May 2022
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Why in News?

Pennsylvania has become the first major fossil fuel-producing state in the US to adopt a carbon pricing policy to address climate change.

  • It joins 11 states where coal, oil and natural gas power plants must buy credits for every ton of carbon dioxide they emit.

What is the Carbon Pricing Approach?

Carbon pricing is an instrument that captures the external costs of greenhouse gas(GHG) emissions and ties them to their sources through a price usually in the form of a price on the carbon dioxide (CO2) emitted.

  • These GHG emissions include the costs of emissions that the public pays for, such as damage to crops, health care costs from heatwaves and droughts, and loss of property from flooding and sea-level rise.
  • A price on carbon helps shift the burden for the damage from GHG emissions back to those who are responsible for it and who can avoid it.

There are two main types of carbon pricing namely:

Emission Trading System : It is a system where emitters can trade emission units to meet their emission targets.

Carbon Tax: It directly sets a price on carbon by defining a tax rate on greenhouse gas emissions or – more commonly – on the carbon content of fossil fuels.

Different approaches adopted by countries to address climate change:

Social Cost of Carbon: The United States has adopted a less direct approach known as the Social Cost of Carbon. This approach calculates future climate damages to justify tougher restrictions on polluting industries.

Carbon Pricing approach: On the other hand, countries like Canada have adopted a Carbon Pricing approach. For example, Canada imposes fuel charges on individuals and also makes big polluters pay for emissions. It’s one of 27 nations with some kind of carbon tax.


  • The social cost of carbon attempts to capture the value of all climate damage, centuries into the future.
  • Carbon pricing reflects how much companies are willing to pay today for a limited amount of emission credits offered at auction.

In other words, the social cost of carbon guides policy, while carbon pricing represents policy in practice.

Significance of Carbon Pricing:

  1. Putting a price on carbon helps to incorporate climate risks into the cost of doing business.
  2. Emitting carbon becomes more expensive, and consumers and producers seek ways to use technologies and products that generate less of it.
  3. The market then operates as an efficient means to cut emissions, fostering a shift to a clean energy economy and driving innovation in low-carbon technologies.
  4. Complementary renewable energy and energy efficiency policies are also critical to cost-effectively drive down emissions.

Issues related to Carbon Pricing:

  • Carbon prices now exist in 46 countries, covering about 22 percent of the carbon pollution that humans release each year. But these policies are riddled with loopholes.
  • Big carbon polluters like fossil fuel companies, electric utilities, automakers, petrochemical companies, and other heavy industries, have used their structural power to receive policy exemptions.
  • According to the World Bank, countries need policies between $40 to $80 per tonne to meet the Paris Agreement targets. Yet half of the world’s carbon prices are less than $10 per tonne.
  • Some researchers suggested that it limits innovations. But there is no strong evidence that carbon pricing has rapidly induced the innovation we need in new, cleaner technologies.


‘Lucy’ Mission:

Launched in October 2022, this is NASA’s first mission to explore the Jupiter Trojan asteroids.

  • It is a solar-powered mission.
  • It is estimated to be over 12 years long, during the course of which the spacecraft will visit eight asteroids covering a distance of about 6.3 billion km to deepen the understanding of the “young solar system”.

Aim of the mission:

The mission is designed to understand the composition of the diverse asteroids that are a part of the Trojan asteroid swarms, to determine the mass and densities of the materials and to look for and study the satellites and rings that may orbit the Trojan asteroids.