Key elements for fair and effective emissions trading systems that work for people and climate

Carbon Market Watch outlines ten key elements for effective carbon pricing, arguing that such systems must be integrated into a broader policy mix, utilize absolute declining caps, and eliminate free allocations and offsets. The briefing emphasizes the need for transparency, the reinvestment of revenues into climate action and vulnerable communities, and the use of carbon border levies to prevent leakage without protecting polluting industries. It concludes that carbon pricing is a tool to be used alongside regulations and democratic engagement, rather than a standalone solution for decarbonization.

• Carbon pricing should not be a standalone solution but part of a broader policy mix including fossil fuel phase-outs, investment in renewables, and energy efficiency measures to achieve net zero.
• Absolute caps that decrease over time are the most robust way to ensure emissions reductions and align with Paris Agreement targets, whereas intensity-based caps used in China and Indonesia do not guarantee overall reductions.
• Free allocations, rebates, and subsidies for fossil fuels undermine the price signal and can lead to windfall profits for polluting companies, as seen in the EU ETS.
• The risk of carbon leakage—where industries relocate to countries with weaker policies—is largely theoretical and significantly overestimated; academic evidence suggests leakage is no more than 14%.
• Carbon offsets and removals should be excluded from pricing schemes because they often lack environmental integrity, distort carbon prices, and allow polluters to avoid internal decarbonization.
• Revenues from carbon pricing must be transparently earmarked for climate action and social protection; the EU ETS serves as a warning where less than 60% of €88.5 billion raised between 2013 and 2021 went to genuine climate investment.
• Carbon border adjustment mechanisms can prevent the import of high-emission products, but they must be designed equitably to avoid penalizing developing countries and should be linked to global decarbonization.

APA

Tamellini, L., & Marullaz, J. (n.d.). Key elements for fair and effective emissions trading systems that work for people and climate. Carbon Market Watch. https://carbonmarketwatch.org/wp-content/uploads/2025/11/2025-briefing-Carbon-princing-done-right.pdf

Chicago

Tamellini, Lidia, and Jeanne Marullaz. Key elements for fair and effective emissions trading systems that work for people and climate. Carbon Market Watch, n.d. https://carbonmarketwatch.org/wp-content/uploads/2025/11/2025-briefing-Carbon-princing-done-right.pdf.

Wikipedia

{{cite report |last1=Tamellini |first1=Lidia |last2=Marullaz |first2=Jeanne |title=Key elements for fair and effective emissions trading systems that work for people and climate |publisher=Carbon Market Watch |url=https://carbonmarketwatch.org/wp-content/uploads/2025/11/2025-briefing-Carbon-princing-done-right.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{tamellinindkey, author = {Tamellini, Lidia and Marullaz, Jeanne}, title = {{Key elements for fair and effective emissions trading systems that work for people and climate}}, institution = {Carbon Market Watch}, url = {https://carbonmarketwatch.org/wp-content/uploads/2025/11/2025-briefing-Carbon-princing-done-right.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }