Putting a price on CO₂ emissions and thus making emissions more expensive can make a significant contribution to reducing them. In a study published in The Economic Journal, Prof. Dr. Fabian Herweg, University of Bayreuth, and Prof. Dr. Klaus M. Schmidt, LMU Munich, compare two governmental instruments of carbon pricing with regard to their effectiveness: A carbon tax strengthens the willingness of households to voluntarily reduce CO₂ emissions. In contrast, a market for trading emission allowances that is based on a pre-determined emissions cap has a discouraging effect. It leads to higher emissions and shifts the burden of climate protection onto consumers with lower incomes.
Carbon taxation is ecologically more effective and socially equitable than trading of emission allowances
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