What are the differences between cap-and-trade and carbon tax?

What are the differences between cap-and-trade and carbon tax?

Cap-and-trade sets a limit on emissions and allows companies to buy and sell permits, while a carbon tax directly charges a fee per ton of emissions.

Which system is more effective in reducing emissions?

Effectiveness can vary; cap-and-trade can create a market for emissions reductions, while a carbon tax provides a clear price signal.

What are the economic impacts of each system?

Cap-and-trade can lead to market volatility, while a carbon tax provides predictable costs, which can help businesses plan better.

Are there any countries that use both systems?

Yes, some countries implement both systems to balance flexibility and certainty in their climate policies.

Which system is more popular among policymakers?

Popularity varies by region; some prefer cap-and-trade for its market-based approach, while others favor the simplicity of a carbon tax.