RUDN Journal of Economics (Dec 2023)
Comparative analysis of the carbon market and the carbon tax mechanisms efficiency to achieve the goals of the global carbon footprint reduction
Abstract
The environmental agenda is decisive in the formation of the world economy at the present stage. The need for a green transition is rarely questioned by scientists. However, there remains a wide range of opinions about which instruments are the most effective in achieving the set goals of reducing the carbon footprint. The most popular mechanisms today are the carbon market and carbon tax mechanisms. Aim of the research was using modeling, literature analysis, and deduction methods to compare the similarities and differences between the basic principles of applying a carbon tax and a carbon market mechanism, the authors of the article identify the advantages and disadvantages of both approaches. The results of the research showed that the carbon market mechanism has obvious advantages such as flexibility, cross-industry and crossterritory coverage, and relative benefits for companies compared to a carbon tax mechanism. At the same time, the carbon tax mechanism has the obvious advantage of low management costs and wide coverage, but, on the other hand, these advantages are offset by potential inefficiencies and high “cost” for companies. The analysis of the policies of large countries with large carbon emissions over the past 2-3 years shows that they are more likely to introduce elements of the carbon market to reduce emissions. Based on the theoretical analysis of the main characteristics of the carbon market and carbon tax, as well as their advantages and disadvantages, the authors urge not to be limited to one of the options, but to use both mechanisms simultaneously. In particular, the carbon market should be the main mechanism when the goal is to create more incentives to actively reduce carbon emissions, while carbon tax policies can be an additional measure to incentivize or “punish” those enterprises that exceed emission standards, also, the carbon tax will help to involve those industries that, for various reasons, cannot be represented on the carbon market.
Keywords
