Abstract
Emissions pricing is a regulatory instrument that imposes a cost on emissions that are harmful to the natural environmental and humans. It is a flexible instrument in that it allows agents operating in a market context to decide how to abate their emissions and which technologies to pursue. It is an economic incentive for emitters and upstream and downstream economic agents to move away from emissions-intensive activities to low-emissions activities, emissions-free activities or negative-emissions activities. A notable application of emissions pricing, and one that is the focus of this entry, is climate change. Economists argue that the pricing of greenhouse gases (GHGs), including carbon dioxide (CO2), methane (CH4) and nitrous oxide (N2O), represents the most powerful and efficient way to mitigate climate change.
