ABSTRACT
Over the past decade, carbon markets have become an important instrument to reduce global greenhouse gas (GHG) emissions. The main advantage of market instruments is that they can help achieve emissions reductions in a cost-effective manner. The carbon market provides regulated entities – regions, countries, companies – with flexibility as to where and how they reduce emissions: an entity with the opportunity to reduce emissions at low costs can implement more GHG abatement measures and sell its excess allowances to an entity that faces higher costs, thereby reducing the overall costs to achieve an emissions reduction target. Effective and robust carbon markets will, over time, see the price of carbon increase, creating incentives to reduce emissions, and signalling to investors and industry the necessity for long-term investment in low-carbon technologies.
