Past exam of the short options paper shared by Prelims and Parts A and B of the physics course of the University of Oxford / 2012 / S4 / 3 / e

A common minimum carbon price can make the external cost of emissions visible in investment and dispatch decisions, encourage reductions where they are cheapest, and reduce incentives to relocate emissions-intensive production to unpriced jurisdictions. A credible rising or durable price signal can be more useful for long-lived investment than a volatile short-term spot price.

For an illustrative price of $40$ currency units per tonne of carbon dioxide, generation emitting $0.9$ tonnes per MWh incurs $36$ units per MWh, while generation at $0.4$ tonnes per MWh incurs $16$. Those changes are large enough to affect some operating choices, but the actual switching point depends on fuel prices, efficiency and capacity constraints.

A price is not sufficient by itself. Measurement, enforcement, distributional effects and revenue use matter; infrastructure, innovation spillovers, information failures and landlord-tenant incentives can justify complementary policies. Nor is a uniform international minimum a logical prerequisite for any effective reduction: standards, clean-power deployment and efficiency policies can reduce emissions even before every country agrees. The strongest defensible claim is that broad, credible pricing is a valuable coordination instrument, not a uniquely necessary or automatically sufficient solution.^[ref]