Market-Based Mechanisms for Climate Mitigation
Summary
Market-based mechanisms harness economic incentives to reduce greenhouse gas emissions and stimulate investment in low-carbon technologies. Instruments such as carbon taxes and cap-and-trade systems assign a price to carbon dioxide and other emissions, thereby internalising the social cost of climate change. Crediting schemes, including compliance and voluntary carbon markets, allow emitters to meet obligations or voluntary pledges by purchasing emission reductions or removals generated elsewhere. These approaches reward innovation in renewables, energy efficiency, and land-use change while encouraging transparent accounting and stringent verification. Recent policy developments under the Paris Agreement’s cooperative Article 6 framework aim to harmonise international trading rules, mitigate risks of double counting and non-additionality, and ensure environmental integrity. Market-based mechanisms now intersect with sustainable finance, biodiversity conservation and social equity objectives, creating opportunities for integrated climate-development strategies worldwide.
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Market-Based Mechanisms for Climate Mitigation publication trend
The graph below shows the total number of articles in market-based mechanisms for climate mitigation across all publications each year (not limited to Nature Index journals).
Technical terms
Carbon credit: A tradable certificate representing a quantified reduction or removal of one tonne of carbon dioxide equivalent emissions.
Additionality: The requirement that emission reductions or removals would not have occurred without the incentive provided by a carbon market.
Carbon sink: A natural or engineered reservoir, such as forests or soils, that absorbs and stores more carbon dioxide than it emits.
Cap-and-trade: A regulatory system that sets an overall emissions limit and allows participants to buy and sell allowances to emit within that cap.
Article 6 cooperative approaches: Provisions of the Paris Agreement that establish rules for international transfer of mitigation outcomes to avoid double counting and ensure environmental integrity.
References
- The relative importance of carbon markets to the waste management sector’s future contribution to climate change commitments under the Paris Agreement: insights from Australia. Carbon Neutrality (2023).
- Avoiding emissions versus creating sinks—Effectiveness and attractiveness to climate finance. Global Change Biology (2023).
- Carbon offsets are incompatible with the Paris Agreement. One Earth (2023).
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