Carbon Pricing as an Effective Instrument of Climate Policy: Searching for an Optimal Policy Instrument

Abstract

The paper highlights the use of carbon pricing as an effective market tool to control GHG emissions. It describes the discussion on the benefits and limitations of both carbon tax and carbon trading. The paper summaries this debate and it argues that, as well as economic effectiveness, many other factors are highly relevant when choosing that right policy instrument. These include political feasibility, impact on competitiveness, institutional requirements, incentives for R\&D and many others. Finally, interesting lessons are drawn for policy makers and academics willing to develop such instruments.