I remember thinking that carbon pricing mechanisms were straightforward until the day a senior executive asked me for a briefing on this topic. It is a trap that experts often fall into, assuming the concepts they are researching are well-known by others. Terminology such as carbon tax, emission trading schemes, internal carbon pricing or voluntary carbon markets are relatively new to mainstream business jargon and can be confusing.

Here I attempt to provide clear definitions and practical explanations of how these terms impact businesses and how businesses can future-proof themselves against those impacts.

Carbon pricing and climate action 
Carbon pricing is relatively easy to understand as a government policy – it is introduced to compensate for the external costs of carbon emissions to the public, such as damage to crops and property and additional healthcare costs due to extreme weather events. Particularly in the light of the most recent Intergovernmental Panel on Climate Change (IPCC) reports, it makes perfect sense to tie these costs directly to the carbon polluters contributing most to climate change.