Economic incentives in a new climate agreement

Virtually every aspect of economic activity results in greenhouse gas emissions, so meaningful climate policies will need to alter the fossil fuel foundation of economies over the long term. Climate change policy will likely cost more, benefit more, and require more changes in behavior by firms and individuals than any other environmental policy. The magnitude of this challenge has drawn attention to the potential use of market-based or economic-incentive instruments to ensure that polluters face direct cost incentives to mitigate emissions at the lowest possible cost. The first section describes various economic-incentive policy instruments and the second section discusses their potential application in the design of an international climate policy agreement.