# Carbon Price

*ESG & Sustainable Finance — Finicade finance glossary*

A carbon price makes emitting cost money, either through a tax or a cap-and-trade system where a fixed number of permits are traded. It's the textbook remedy for an externality: it internalises the damage into the price without dictating how firms respond. The design questions that decide effectiveness are coverage, the level, and whether permits are auctioned or given away free.

**Also known as:** carbon tax, cap and trade, emissions trading, ETS

**Related terms:** [Externality](https://finicade.com/glossary/externality), [Carbon Credit](https://finicade.com/glossary/carbon-credit), [Transition Risk](https://finicade.com/glossary/transition-risk), [Stranded Asset](https://finicade.com/glossary/stranded-asset), [Excise Tax](https://finicade.com/glossary/excise-tax)

Source: https://finicade.com/glossary/carbon-price