Harnessing market mechanisms for greenhouse gas reduction: A comprehensive review

We provide a comprehensive review and analysis of greenhouse gas (GHG) reduction policies that leverage market mechanisms to incentivize behavior. These mechanisms are classified into price-based mechanisms, which directly affect emission prices, and quantity-based mechanisms, which indirectly influence them. Many countries focus on carbon dioxide emissions, using carbon taxes and subsidies to affect prices, while regulating quantities through carbon credits and offsets to allocate pollution rights. Effective market mechanisms require features that promote compliance. We assess the impact of these policies on GHG reduction and categorize challenges into primary—related to market characteristics and policy design—and secondary, arising from the unequal distribution of policy impacts.