How Carbon Markets, Taxes Work (or Sometimes Don’t): QuickTake

It’s an idea that’s been around for more than two decades: To slow climate change, make polluters pay for the damage they cause. Worldwide, more than 60 nations, states and cities have adopted what’s known as carbon pricing. The approach is held up by environmentalists, politicians and even many oil companies as an elegant, free-market approach compared with direct regulation. But while the concept may have broad support, the actual working of such systems have proved hugely controversial in Canada, Australia and other countries.

1. How does carbon pricing work?

There are two main approaches. In one, carbon prices are ...