What is carbon pricing? 

Carbon pricing used to be a niche economic policy but now it is seen as one of the most effective ways for countries to reduce their greenhouse gas emissions. Carbon pricing applies a cost to carbon pollution and then that cost is passed along to the polluters. 

By putting an actual monetary value on carbon, society can then hold emitters responsible for the damage greenhouse gases cause. Greenhouse gas emissions vary across Europe and certainly some countries are doing better than others.  

In 2017, Sweden and Romania had among the lowest per captia emissions, while Poland, Czechia and Iceland were among the worst offenders. 

So how does it work?

There are two main ways of pricing carbon: A tax, and a cap-and-trade system.

A carbon tax is pretty straightforward. Firms pay a certain amount for every ton of carbon they emit. This tax is then passed along to consumers. 

A cap and trade system is a bit more nuanced. It puts a limit, or cap, on total greenhouse gas emissions for an industry in a country or wider region, and sets up a marketplace where firms can trade their emission allowance.

This incentivises companies to produce less greenhouse gases because they can make extra money by selling their excess allowances. It also disincentivizes firms from increasing their carbon emissions because if they do, they'll have to buy more allowances. 

How has it worked so far?

The EU's Emissions Trading System is a cap-and-trade scheme which covers power stations, energy intensive industries and civil aviation. 

The European Union says the system has been working well. Emissions in the sectors covered have fallen 21 percent since the system was set up in 2005. Fewer carbon permits are being created and more are being auctioned off.  

But the scheme has its critics. They say the price hasn't been high enough to steer consumers away from dirty technology. 

After the financial crisis, the price of a ton of CO2 languished under $10 for years, lessening any financial incentive for firms to cut back. 

The price has gone up significantly over the past two years, but the Intergovernmental Panel on Climate Change says carbon prices probably need to be 20 times higher in Europe to rein in fossil fuel emissions. 

What has happened in Germany?

Germany is now taking matters into its own hands. A $60 billion climate package will come into force in 2020. It includes a carbon pricing scheme. Starting in 2021, a ton of CO2 will be slapped with a $27 levy. 

That rises to $61 by 2025. The goal in Germany is to cut its greenhouse gas emissions to 55 percent of their 1990 level by 2030.