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Carbon markets and carbon pricing: an explainer

The need for addressing the climate crisis through the transition to decarbonised economies is gaining precedence throughout the world. Several countries have set ‘carbon neutral’, ‘net zero’, or ‘net negative’ targets and the number of private enterprises doing the same is also on the rise. The timeline and scope (types of gases) covered varies by country; for example Sweden has committed to greenhouse gas neutrality by 2045, while China is focusing on becoming primarily carbon dioxide neutral by 2060. The consensus by scientists, however, is that in order to meet the Paris Agreement goal of limiting global warming to 2˚C or lower, the global community needs to increase climate ambition reach net zero emissions by no later than 2050. Carbon neutral or net zero implies that any emission of the type(s) of greenhouse gas covered by the policy is matched or netted off by an appropriate mix of direct emissions reductions, emissions avoidance, and emissions removal and sequestration.

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