What is "carbon pricing"?

Carbon pricing refers to a market-based approach aimed at reducing carbon emissions by assigning a cost to carbon output. This strategy encourages businesses and individuals to lower their carbon emissions by making polluting activities more expensive. By putting a price on carbon, it creates a financial incentive for users of fossil fuels to find cleaner energy alternatives or invest in energy-efficient technologies.

Implementing carbon pricing can take the form of carbon taxes, where a uniform tax is applied per ton of emitted carbon, or cap-and-trade systems, where companies are allotted a set number of emissions allowances that they can trade with others. The ultimate goal is to reduce greenhouse gas emissions and mitigate climate change effects by encouraging organizations to adopt sustainable practices.

The correct answer reflects the intention behind carbon pricing, which is fundamentally about influencing market behaviors to lead to a reduction in carbon emissions rather than altering tax structures without a focus on environmental objectives or enhancing fossil fuel production.