A clean innovation comparison between carbon tax and cap-and-trade system

https://doi.org/10.1016/j.esr.2020.100483Get rights and content
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Highlights

  • Both cap-and-trade system and carbon tax stimulate clean innovation.

  • The effects of cap-and-trade system on firms' profits are uncertain.

  • Cap-and-trade system has higher efficiency than carbon taxes on global climate change control.

  • This article further develops the innovative theory under both carbon tax and cap-and-trade systems.

Abstract

Both carbon tax and cap-and-trade systems are widely applied to reduce emission. This article compares the clean innovation effects of carbon tax with cap-and-trade systems by a static optimal model. Firstly, both cap-and-trade system and carbon tax stimulates clean innovation and reduce emission. Secondly, cap-and-trade system is more efficient to reduce emission and to promote clean innovation than carbon tax. Finally, firms undertake a loss under carbon tax, while the effects of cap-and-trade system on firms' profits are uncertain, which depends on the carbon cap. In summary, this article supports cap-and-trade system to cope with global climate change, but the regulator should choose the suitable emission cap and carbon trading price to guarantee the efficiency of cap-and-trade system. So, different purposes match with different carbon emission tax policies.

Keywords

Cap-and-trade system
Carbon tax
Innovation investment
Emission reduction

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