Carbon Pricing Mechanisms
What is a cap-and-trade system?
A cap-and-trade system sets a legal limit (cap) on the total greenhouse gas emissions for certain sectors and issues allowances equal to that cap. Companies can trade these permits: emitters who reduce more than required can sell surplus allowances to those that emit more. This mechanism puts a price on carbon and rewards emission reductions.
Sentinel Earth helps companies under cap-and-trade regimes like the EU ETS optimize their compliance strategy, balance risk, and integrate voluntary credits into a holistic decarbonization pathway.
What is a carbon tax?
A carbon tax imposes a fixed cost per tonne of CO₂e emitted. It doesn't cap emissions, but it makes them financially costly — motivating polluters to cut emissions to avoid the tax.
Sentinel Earth supports clients in modeling future tax exposures and implementing real emission reductions and credit strategies that can mitigate fiscal liability and climate risk.
What is the EU ETS?
The EU Emissions Trading System is the EU’s flagship carbon pricing mechanism. It covers energy, industry, aviation, and (soon) shipping and buildings, requiring companies to surrender allowances for their emissions.
Sentinel Earth helps regulated entities optimize EUA acquisition, avoid penalties, and integrate voluntary action into EU compliance frameworks.
What are EUAs?
EU Allowances are tradable permits under the EU ETS — each gives the right to emit one tonne of CO₂.
Sentinel Earth advises companies on EUA trading strategy and integrates EUA planning with broader sustainability and credit procurement roadmaps.
What is the difference between a carbon credit and an EUA?
A carbon credit is a project-based unit that represents a real, verified reduction or removal of CO₂. An EUA is a permit to emit under a capped system. Credits are often used voluntarily; EUAs are used for regulatory compliance.
Sentinel Earth helps clients understand when to use which — and how to blend them in a credible, cost-effective climate strategy.