What influences carbon pricing?

The pricing of carbon per ton can be influenced by a range of factors, including:

1. Government policies: Carbon pricing schemes such as carbon taxes and cap-and-trade systems can be set by governments at various levels, from local to national and international. The design of these policies, such as the level of the carbon tax or the number of emissions allowances issued, can influence the price of carbon.
2. Market demand and supply: The demand for carbon credits by companies and governments looking to offset their emissions, and the supply of credits available for purchase from carbon reduction projects, can impact carbon pricing. When demand is high and supply is low, prices tend to rise, and vice versa.
3. Economic conditions: Economic factors such as inflation, interest rates, and economic growth can affect the price of carbon. For example, a strong economy may lead to increased emissions, driving up demand for carbon credits and increasing their price.
4. Carbon intensity of industries: The carbon intensity of industries, or the amount of carbon emissions per unit of output, can also influence the price of carbon. Industries with high carbon intensity may need to purchase more carbon credits to meet emissions reduction targets, driving up the price of credits.
5. International carbon markets: The emergence of international carbon markets, where carbon credits can be traded across borders, can also impact carbon pricing. The rules and regulations governing these markets can affect the price of carbon credits and create opportunities for arbitrage.
6. Public perception and awareness: Public perception and awareness of climate change and carbon emissions can also impact the price of carbon. For example, increasing public concern over climate change may drive up demand for carbon credits and increase their price.

Source:

1. World Bank. (2019). State and Trends of Carbon Pricing 2019. Retrieved from https://openknowledge.worldbank.org/handle/10986/32436
2. United Nations Framework Convention on Climate Change (UNFCCC). (2021). Carbon pricing. Retrieved from https://unfccc.int/process-and-meetings/the-paris-agreement/the-paris-agreement/carbon-pricing
3. International Emissions Trading Association (IETA). (2021). Carbon Pricing 101. Retrieved from https://www.ieta.org/resources/carbon-pricing-101/
4. Carbon Trust. (2018). Factors affecting the price of carbon. Retrieved from https://www.carbontrust.com/resources/factors-affecting-the-price-of-carbon/
5. Harvard Business Review. (2020). Why the Price of Carbon is No Longer Just a Technical Issue. Retrieved from https://hbr.org/2020/01/why-the-price-of-carbon-is-no-longer-just-a-technical-issue