A well-designed price on carbon – either a tax or a cap-and-trade system – is the most efficient way to reduce greenhouse gas (GHG) emissions
Economy-wide: It should apply to all quantifiable GHG emissions in all sectors of the economy on a CO2 equivalent basis.
Single policy: It should pre-empt future and replace existing regulations that overlap or duplicate the carbon price.
Leakage: It should prevent the shifting of emissions and jobs from one country or subnational jurisdiction to another, ideally through measures ensuring the continued competitiveness of energy-intensive, trade-exposed domestic industries.
Point of regulation: It should be applied and collected as close as administratively feasible to the point of emissions, providing transparency to emitters and helping them make economic choices to reduce emissions.
Pricing and escalation: Subject to periodic review, the price should be ramped up gradually before accelerating and levelling off.
Programme assurance: Alongside periodic review, it should include flexible and dynamic adjustment mechanisms to assure that its emissions and economic goals are achieved.
Offsets: It should give credit to companies in sectors exposed to the price for investing in accredited emissions reductions from sectors not exposed to the price (e.g. agriculture, forestry and other land use industries).
Additional policies: These should be limited in number, tightly focused on correcting market failures (e.g. energy efficiency standards), filling temporary gaps in carbon pricing coverage (e.g. regulations for hard-to-quantify GHG emissions like methane) and transitional support for promising but emerging low-carbon technologies (e.g. CCUS and renewables).
Use of revenues: It is for governments to determine the use of revenues but they could be returned to the economy in beneficial ways, e.g. through income or payroll tax reductions or investment in programmes related to carbon reduction (e.g., sector retraining, low carbon R&D).