Weighted average cost of carbon

The weighted average cost of carbon may sound confusing, but it's actually pretty simple. Let's imagine that you want to buy some candies from the store, but you don't have enough money to buy all the candies you want. You need to decide which candies are the most important to you and which ones you can do without.

Now, think of carbon emissions like the candies. Companies are allowed to emit a certain amount of carbon, but if they want to emit more, they have to pay a fee. The weighted average cost of carbon is like the price tag on those extra carbon emissions.

To calculate the weighted average cost of carbon, we look at how much each company is emitting and how much they're paying for those emissions. We then add up all those costs and divide by the total amount of carbon emitted.

This means that companies that emit more carbon have to pay more money than companies that emit less. It's like saying that if you want more candies, you have to pay more money.

The goal of the weighted average cost of carbon is to encourage companies to reduce their carbon emissions. By making it more expensive to emit carbon, companies are incentivized to find ways to emit less or invest in cleaner technology. Just like how you might decide to buy healthier snacks instead of candy to save money.

Overall, the weighted average cost of carbon is a way to balance out the cost of emitting carbon with the need to reduce greenhouse gas emissions and combat climate change, just like how you might balance the cost of candies with the need to stay healthy.