Here’s a terrific simple figure, from Carolyn Fischer, to help teach the difference between emissions pricing and standards.

The RHS figure says price + benchmark. That’s what a (tradable) standard is: a carbon price + a subsidy at a benchmark (emissions/output) level (1/x)

Firms see the price signal in both cases. The difference is the light green rectangle. Under a carbon price, firms have to pay for *all* their emissions. Under the standard, the (implicit) subsidy relieves emitters of the responsible to pay for some emissions. (2/x)

The big advantage of emissions standards becomes clear: the burden on firm is much lower, which means they will pass along a lower burden (e.g. to customers in the form of higher prices). (3/x)

OTOH, pricing provides everyone with proper incentives, but the standard does not provide the full incentive to consumers. BUT, in most cases, consumer response is far less important to decarbonization than the shift to lower carbon supply. So maybe not much of a trade-off? (4/x)

(Side note: the figure doesn't show what I think is a much bigger advantage of pricing over standards: the ability to harmonize policy across the economy, and therefore create a coherent national strategy that may be critical for an international climate strategy.) (5/x)

As Dr. Fischer says in her piece (here's the link btw), it’s clear why industry might prefer emissions standards. The burden on them is much lower. https://www.brookings.edu/wp-content/uploads/2019/10/PP_Fischer_FINAL-1.pdf (6/x)

For individuals/consumers/society, it’s more complicated. For example, the changes to energy prices will be smaller on standards, but that's because the carbon pricing revenue is (effectively) being given to emitters rather than back to society. (7/x)

Further to that point, since all carbon prices these days are designed to be highly progressive, most lower income households are likely to fare better under carbon prices, while most higher income households probably prefer the smaller price changes from the standards. (8/x)

But, back to the major takeaway of this cool figure: at least from the perspective of emissions reductions in a single sector, emissions pricing and standards are lot more similar than people might think. /end