Price based emission reduction instruments are deemed to be effective in achieving emission reductions, as they induce emission reductions through price signals, and also generate revenues which can later be used. Among all, carbon tax systems and emission trading schemes are identified as the most popular pricing instruments. The success of a carbon pricing instrument heavily depends on the way the firms respond to it after the implementation. However, a study conducted on assessing the response of firms is not done. Hence, this research was aimed at evaluating the response of firms to carbon pricing instruments in Sri Lankan apparel sector. Initially, a comprehensive literature review was carried out from which a conceptual framework was developed, indicating how carbon pricing policy instruments are derived from principles of environmental economics and five decision alternatives available for firms in response to carbon pricing instruments. From the expert interviews it was found that the above decision is influenced by three decision criteria, which indicated analytic hierarchy process (AHP) as the best method to identify the response of firms. Hence, as a part of this study, hierarchical structure of AHP was developed using the findings of literature review and expert interviews.