Bottom Line on Climate Policy Terminology

This guide from the World Resources Institute defines key climate policy terminology, explaining the differences between carbon taxes and cap-and-trade programs, the mechanics of emissions allowances and offsets, and the distinction between climate mitigation and adaptation.

• Greenhouse gases (GHGs) are both naturally occurring and manmade gases in the atmosphere that absorb heat, trapping it and warming the Earth. Climate policies generally target six specific GHGs.
• Carbon pricing is a market-based approach to discourage GHG emissions by making them expensive. This can be achieved through a carbon tax, which imposes a direct fee (e.g., $25 per tonne of CO2e) providing price certainty but uncertain emission outcomes, or a cap-and-trade program, which sets a maximum emission limit (cap) providing certain emission outcomes but an uncertain market price.
• In cap-and-trade systems, emissions allowances—which grant the right to emit a specific amount of GHGs—are distributed via allocation (direct distribution to sectors like oil refineries or non-regulated parties like farmers) or auctions (where allowances go to the highest bidders). Auctions can generate revenue for climate adaptation or to mitigate economic impacts on low-income consumers.
• Regulation of GHG emissions can occur at different points: upstream (e.g., natural gas processors or oil refiners), downstream (e.g., large industrial facilities or coal-fired power plants), or through hybrid approaches. Additionally, complementary policies, such as a renewable electricity standard (RES), can reinforce these reductions in specific sectors.
• Other climate policy mechanisms include offsets (verified emission reductions that compensate for emissions elsewhere), early action incentives for reductions made before legal requirements, and cost-containment mechanisms (such as price ceilings or 'safety valves') to reduce market volatility and economic distress.

APA

World Resources Institute (n.d.). Bottom Line on Climate Policy Terminology. https://www.wri.org/research/bottom-line-climate-policy-terminology

Chicago

World Resources Institute. Bottom Line on Climate Policy Terminology. n.d. https://www.wri.org/research/bottom-line-climate-policy-terminology.

Wikipedia

{{cite report |author=World Resources Institute |title=Bottom Line on Climate Policy Terminology |url=https://www.wri.org/research/bottom-line-climate-policy-terminology |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{worldresourcesinstitutendbottom, author = {{World Resources Institute}}, title = {{Bottom Line on Climate Policy Terminology}}, institution = {World Resources Institute}, url = {https://www.wri.org/research/bottom-line-climate-policy-terminology}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }