To tax or to trade? A global review of carbon emissions reduction strategies

Abstract

Carbon taxes and emissions trading systems (ETSs) are the two most popular policy tools in the global effort to achieve net-zero carbon emissions. Herein, we review empirical and theoretical research on carbon taxes and ETSs, focusing on the policies’ design, implementation, and effectiveness in various environmental and economic contexts. We provide a comprehensive comparison of the relative advantages and disadvantages of these two policies and offer insights into their future design and application. Our main conclusion is that an integrated mechanism that combines features of both policies with those of other complementary policies may be a more effective approach to emissions abatement than solitarily using either policy.