What it is
Climate policy is the set of rules, agreements, and market mechanisms governments and institutions use to reduce emissions and manage the transition to a low-carbon economy. Climate economics is the study of how to do that efficiently — how to price the cost of emissions, allocate the burden of cutting them, and fund the transition.
The Paris Agreement
The Paris Agreement (2015) is the current global framework: nearly every country submits a Nationally Determined Contribution (NDC), its own self-set emissions-reduction pledge, reviewed and, in theory, strengthened every five years. There’s no global enforcement mechanism; NDCs work through transparency and peer pressure rather than penalties, which is a common criticism of the framework.
Carbon pricing
Carbon pricing is the main economic tool for making emissions cost something — the logic being that if polluting is free, there’s little financial incentive to stop. Two dominant models:
- Carbon tax — a government sets a fixed price per ton of CO2e emitted.
- Cap-and-trade (also called an Emissions Trading System, or ETS) — a government sets a shrinking cap on total emissions, issues tradable permits up to that cap, and lets the market set the price. The EU ETS is the largest example by market value; China’s national ETS, launched in 2021, now covers more emissions volume.
Carbon markets
Carbon markets extend pricing into buying and selling: a carbon credit (or carbon offset) represents one ton of CO2e that was either avoided or removed from the atmosphere, for example by funding a reforestation project or a direct air capture facility, which a buyer can purchase to counterbalance their own emissions. Two distinct markets get conflated often enough to be worth separating:
- Compliance markets — credits required by law, e.g. under an ETS.
- Voluntary markets — credits companies buy voluntarily, often to support public sustainability claims, with far less standardization and a well-documented history of quality problems (credits that don’t represent real, additional emissions reductions).
That quality problem is also why MRV (Measurement, Reporting, and Verification), the process of independently confirming that a claimed reduction actually happened, is a recurring theme across both policy and the software built to support it.
Disclosure regulation
Disclosure regulation is the newer, fast-moving front: rules requiring companies to measure and publicly report their emissions and climate risk, rather than just optionally offsetting them. The three most-cited examples are the EU’s CSRD (Corporate Sustainability Reporting Directive), California’s SB 253, and a US SEC climate disclosure rule — but “fast-moving” cuts both ways, and all three are genuinely in flux as of mid-2026, not settled law. The SEC voted to stop defending its rule in 2025 and formally proposed rescinding it entirely in June 2026. CSRD’s own 2026 “Omnibus” simplification narrowed its scope to companies with over 1,000 employees and €450M+ turnover and delayed a large tranche of reporting by two years. SB 253’s reporting deadline has been pushed back repeatedly amid a pending legal challenge.
None of this means disclosure is going away — if anything, the ISSB’s IFRS S1/S2 standards (see the Finance / Reporting topic) are turning out to be the more durable global reference point than any single country’s rule. But treat any specific disclosure deadline you read elsewhere as provisional and worth double-checking, not settled fact. Even with that churn, these rules are a major demand driver for Climate SaaS: companies now need software to comply, not just to look good.
Social cost of carbon
A related concept: the social cost of carbon, an estimate, used in policy analysis, of the economic damage caused by emitting one additional ton of CO2. In practice, US agencies have used figures anywhere from roughly $50 to $190 per ton — the range itself is a policy football, since it depends heavily on which discount rate and administration produced the estimate, not a single settled scientific number. It’s used to justify and evaluate the cost of climate regulations and subsidies.
Government spending: the IRA
Government spending is the other major lever, alongside pricing and regulation: industrial policy like the US Inflation Reduction Act (IRA) used subsidies and tax credits to make clean technology cheaper, rather than making emissions more expensive. That’s the original design — worth flagging that 2025’s One Big Beautiful Bill Act rolled back a meaningful chunk of it (the EV credit ended in September 2025, and several clean-energy credits are now on an accelerated phase-out), so treat “the IRA is subsidizing clean tech” as directionally true but no longer describing current law in full. Pricing pollution and subsidizing alternatives are trying to shift the same underlying economics from opposite directions.
ESG vs. greenwashing
ESG and greenwashing get used interchangeably often enough to erase a real difference. ESG (Environmental, Social, and Governance) is a broad framework investors use to evaluate non-financial risk — climate is one part of the “E,” alongside things like labor practices and board governance. Greenwashing is the failure mode: making a company or product look more environmentally responsible than it actually is. It’s the reason disclosure rules and MRV standards keep getting tighter.
Why it matters
Policy and economics create the demand that much of the rest of this hub responds to: disclosure rules create Climate SaaS’s core customer need (mandatory emissions reporting), carbon pricing and markets create entire business models (credit marketplaces, MRV verification services), and subsidy programs like the IRA directly shape which sectors — Storage, Energy/Grid, Mobility — are attracting capital and jobs right now. Reading a company’s “why it matters” without this context means missing why the company’s business model exists at all.