Carbon emission tradingEmission trading (ETS) for carbon dioxide (CO2) and other greenhouse gases (GHG) is a form of carbon pricing; also known as cap and trade (CAT) or carbon pricing. It is an approach to limit climate change by creating a market with limited allowances for emissions. This can lower competitiveness of fossil fuels and accelerate investments into low carbon sources of energy such as wind power and photovoltaics. Fossil fuels are the main driver for climate change. They account for 89% of all CO2 emissions and 68% of all GHG emissions.
Carbon offsets and creditsA carbon offset is a reduction or removal of emissions of carbon dioxide or other greenhouse gases made in order to compensate for emissions made elsewhere. A carbon credit or offset credit is a transferrable financial instrument (i.e. a derivative of an underlying commodity) certified by governments or independent certification bodies to represent an emission reduction that can then be bought or sold. Both offsets and credits are measured in tonnes of carbon dioxide-equivalent (CO2e).
Carbon leakageCarbon leakage a concept to quantify an increase in greenhouse gas emissions in one country as a result of an emissions reduction by a second country with stricter climate change mitigation policies. Carbon leakage is one type of spill-over effect. Spill-over effects can be positive or negative; for example, emission reductions policy might lead to technological developments that aid reductions outside of the policy area. Carbon leakage is defined as "the increase in emissions outside the countries taking domestic mitigation action divided by the reduction in the emissions of these countries.
Gas-fired power plantA gas-fired power plant (sometimes referred to as "gas-fired power station" or "natural gas power plant") is a thermal power station that burns natural gas to generate electricity. Gas-fired power plants generate almost a quarter of world electricity and are significant sources of greenhouse gas emissions. However, they can provide seasonal, dispatchable energy generation to compensate for variable renewable energy deficits, where hydropower or interconnectors are not available.
Carbon budgetA carbon budget is a concept used in climate policy to help set emissions reduction targets in a fair and effective way. It looks at "the maximum amount of cumulative net global anthropogenic carbon dioxide () emissions that would result in limiting global warming to a given level". When expressed relative to the pre-industrial period it is referred to as the total carbon budget, and when expressed from a recent specified date it is referred to as the remaining carbon budget.
Carbon taxA carbon tax is a tax levied on the carbon emissions required to produce goods and services. Carbon taxes are intended to make visible the "hidden" social costs of carbon emissions, which are otherwise felt only in indirect ways like more severe weather events. In this way, they are designed to reduce greenhouse gas emissions by increasing prices of the fossil fuels that emit them when burned. This both decreases demand for goods and services that produce high emissions and incentivizes making them less carbon-intensive.
Emissions tradingEmissions trading is a market-based approach to controlling pollution by providing economic incentives for reducing the emissions of pollutants. The concept is also known as cap and trade (CAT) or emissions trading scheme (ETS). Carbon emission trading for and other greenhouse gases has been introduced in China, the European Union and other countries as a key tool for climate change mitigation. Other schemes include sulfur dioxide and other pollutants.
Greenhouse gasGreenhouse gases are those gases in the atmosphere that raise the surface temperature of planets such as the Earth. What distinguishes them from other gases is that they absorb the wavelengths of radiation that a planet emits, resulting in the greenhouse effect. The Earth is warmed by sunlight, causing its surface to radiate heat, which is then mostly absorbed by water vapor (), carbon dioxide (), methane (), nitrous oxide (), and ozone (). Without greenhouse gases, the average temperature of Earth's surface would be about , rather than the present average of .
Carbon fee and dividendA carbon fee and dividend or climate income is a system to reduce greenhouse gas emissions and address climate change. The system imposes a carbon tax on the sale of fossil fuels, and then distributes the revenue of this tax over the entire population (equally, on a per-person basis) as a monthly income or regular payment. Since the adoption of the system in Canada and Switzerland, it has gained increased interest worldwide as a cross-sector and socially just approach to reducing emissions and tackling climate change.
Stranded assetStranded assets are "assets that have suffered from unanticipated or premature write-downs, devaluations or conversion to liabilities". Stranded assets can be caused by a variety of factors and are a phenomenon inherent in the 'creative destruction' of economic growth, transformation and innovation; as such they pose risks to individuals and firms and may have systemic implications. Climate change is expected to cause a significant increase in stranded assets for carbon-intensive industries and investors, with a potential ripple effect throughout the world economy.
