Carbon trading cut emissions 18% vs carbon taxes
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- Carbon trading cut emissions by about 18% on average across the 100 largest economies studied between 2000 and 2020, according to research published in Management Science.
- Countries using carbon trading also saw a nearly 24% drop in fossil fuel use and a nearly 62% jump in renewable energy adoption over the same period.
- Carbon taxes produced some emission reductions, but the study found similar declines were already occurring before the taxes were enacted, undermining the causal link.
- Carbon taxes failed to drive a major shift toward renewable energy, the researchers reported, unlike their carbon-trading counterparts.
- Associate Professor Ru Hong of Nanyang Technological University and Professor Jennie Bai of Georgetown University co-led the study, expanding the analytical scope beyond prior research that focused on single countries or spillover effects.
- Ru Hong cautioned that carbon trading only works when many countries participate, a practical limitation the study flags for policymakers.
Why it matters: For governments choosing between climate policy tools, the study offers empirical evidence favoring emissions trading: carbon trading cut emissions by 18% while also driving a 62% increase in renewables, an energy-mix shift that carbon taxes failed to deliver. The catch stated by lead researcher Ru Hong is that trading requires broad international participation, so a country going it alone sees diminishing returns and the mechanism can be blunted by holdouts.
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