Edwin van der Werf (Environmental Economics and Natural Resources Group, Wageningen University)
Carbon taxes and cap-and-trade schemes are often considered to be two sides of the same coin in terms of their impacts on emission reductions. However, the exact design of the two pricing instruments will affect the outcomes. We use country-level panel data to assess the efficacy and effectiveness of carbon taxes and cap-and-trade schemes in reducing greenhouse gas emissions. We find that having a cap-and-trade scheme in place has a stronger effect on emissions than having a carbon tax. Regarding effectiveness, we find that a 1 US$ increase in a carbon tax reduces emissions by 0.75% and a 1 US$ increase in the emissions price of a cap-and-trade system reduces emissions by 1.05%. However, this difference is not statistically different.
Changjing Ji (Center for Energy and Environmental Policy Research (CEEP), Beijing Institute of Technology (BIT), Beijing) — Suphi Sen (Environmental Economics and Natural Resources Group, Wageningen University) — Edwin van der Werf (Environmental Economics and Natural Resources Group, Wageningen University).
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