An approach to reducing carbon emissions that uses market-based mechanisms to pass the cost of emitting on to emitters. A key aspect of carbon pricing is the <b>polluter pays</b> principle. Pricing carbon can be achieved through two methods:<ul><li>Emissions trading systems (ETS) – sometimes described as cap-and-trade systems – cap the total level of GHG emissions and allows those industries with low emissions to sell their extra allowances to larger emitters.</li><li>Alternatively, a carbon tax directly sets a price on carbon by defning a tax rate on GHG emissions, or more commonly, on the carbon content of fossil fuels.</li></ul>