Pricing Down Carbon
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One of the most effective ways to induce a shift from the consumption of carbon-intensive fuels to low-carbon alternatives and greater energy efficiency is to set a price on carbon. Whether the policy is based on a simple carbon tax or on a more complex cap-and-trade mechanism, experience in many countries shows that carbon pricing is a cost-effective policy to reduce emissions of greenhouse gases. However, complementary measures are essential. These may include setting fuel efficiency standards for vehicles, imposing energy-efficient building codes, and conceptualising and promoting urban designs that encourage public transport and less use of personal vehicles. Phasing out the use of coal as a fuel in power plants is also one of the strongest measures that can be taken to reduce emissions of greenhouse gases. The way governments choose to disburse carbon revenues has a considerable impact on reducing emissions. In a number of jurisdictions, revenues are returned to households in order to offset the higher fuel prices caused by setting a price on carbon.