Carbon pricing is a market-based tool for reducing carbon (or greenhouse gas, GHG) emissions by shifting the external, social costs of climate change to the source of GHG emissions, thus encouraging polluters to reduce emissions and invest in low-carbon growth strategies (Carbon Pricing Leadership Coalition, 2018; World Bank, 2020). The aim of carbon pricing is to put a monetary value on carbon emissions so that the costs of climate impacts (e.g., damage to crops, health care costs associated with heat waves and droughts, and loss of property from flooding and sea level rise) and the opportunities for low-carbon energy options are better reflected in production and consumption choices (Union of Concerned Scientists, 2017).

Carbon pricing is not only widely recognized as a powerful and efficient instrument for reducing carbon emissions. It is also gaining support globally, with over 45 national jurisdictions and 32 subnational jurisdictions (e.g., cities and states) having implemented and/or planned to implement carbon pricing initiatives

Economic benefits and the uses & social implications of carbon revenues

In addition to being backed by business and proven as efficient means for reducing carbon emissions, carbon pricing policies can also generate a number of economic benefits, with implications for low-carbon growth and improved social equity.

Examples of potential uses for carbon pricing revenues include (Hafstead, 2019):

• Providing per capita dividends or using carbon revenues to cut other taxes including income, sales, especially for low-income individuals;
• Investing in low-carbon innovations (e.g., renewable energy technology, electric vehicles, and energy efficiency solutions) to accelerate the transition to cleaner energy sources and reduce consumer costs;
• Supplying rebates on electricity bills to offset the disproportionate impacts of higher energy prices for low- and moderate-income households;
• Providing transition assistance to worker in communities that depend on the fossil fuels industry for their livelihoods; and
• Investing in communities disproportionately impacted by pollution from fossil fuel industries and providing support for more climate-resilient infrastructure (e.g., improved roads, leviews, and seawalls) or relocation costs for communities at high risk (Union of Concerned Scientists, 2017).