Greenhouse Gas Emission Control Options (Cap and Trade System vs. Carbon Taxes): A Critical Review

Cap and trade and a carbon tax are two distinct policies aimed at reducing greenhouse gas (GHG) emissions. Each approach has its vocal supporters. We examine the relative attractions of a carbon tax, a cap-and-trade system, and a ―hybrid‖ option (a cap-and-trade system with a price ceiling and/or price floor). We show that the various options are equivalent along more dimensions than often are recognized. In addition, we bring out important dimensions along which the approaches have very different impacts, including some dimensions that have received little attention in prior literature. Although no option dominates the others, a key finding is that exogenous emissions pricing (whether through a carbon tax or through the hybrid option) has a number of important attractions over cap and trade. Beyond helping prevent price volatility and reducing expected policy errors in the face of uncertainties, exogenous pricing helps avoid problematic interactions with other climate policies and helps avoid potential wealth transfers to oil-exporting countries.

کلیدواژه ها:

Carbon tax ، cap and trade ، climate change policy ، emissions pricing