Establishing a carbon price, implicitly or explicitly, is potentially one of the most powerful mechanisms available to reduce national greenhouse gas emissions.

• The goal of carbon pricing is to create a change in the economy, whereby the market begins to differentiate between goods and services on the basis of their carbon footprints.
• Explicit carbon pricing directly influences the relative cost of most goods and services and  works better in  markets where the administrative burden is low (e.g. large emitters in power generation and industry)
• Implicit carbon pricing through regulations is most appropriate in sectors, where emission sources are small and dispersed, although the carbon price may be difficult to determine and may be a more expensive option for the economy. Regulations should not undermine or interfere with direct pricing.

Business requires clear signals towards a low-carbon economy, and a level playing field across international markets. This can best be achieved through global and stable carbon prices. Proxy approaches create uncertainty, and may delay investments in low-carbon alternatives.

• Carbon pricing is being introduced piecemeal throughout the world. Some manufacturers incur the cost of carbon, while others do not, although they may be competing in the same market. This can result in “carbon leakage”.
• In heavily regulated markets the producer may not be able to raise prices, and therefore cannot recover the carboncost. The design of a carbon pricing policy must recognize these issues.

In addition to carbon pricing, other elements are needed such as additional funding for research and development (R&D), fiscal support for early large scale demonstration of near-commercial technologies, or the removal of subsidies to  carbon intensive activities.