The most recent report by the World Methereological Organizationi stated that recent evidence shows that concentrations of carbon dioxide in the atmosphere have surged at a record-breaking speed in the last seven decates. The last time the planet experienced a comparable concentration of CO2 was 3-5 million years ago, when the temperature was 2-3°C warmer and sea level was 10-20 meters higher than now.

Economists have termed climate change as a market failure because it imposes huge costs and risks on society, including future generations, and not directly on the polluters. Carbon pricing instruments are mechanisms aimed at internalizing the costs of environmental damages by putting a price on the Green House Gases (GHGs) emissions for different sectors of the economy.