Policy instruments for reducing greenhouse gas emissions

Benjamin Franklin once said that ‘In this world, nothing is certain but death and taxes’ and a significant body of the scientific literature including the IPCC have indicated that the climate change problem has become such a pressing issue that we now face a stark choice between the premature death of hundreds of millions of the people on this planet (from storm, flood, starvation, war or pestilence) and the use of taxation or other financial strategies to change the relative cost of carbon intensive sources of energy compared to the cost of ‘green’ sources of energy. A change in the relative cost of ‘green energy’ will not itself solve the problem, but it is a necessary (though not sufficient) step if there is to be the required behavioural change which will support the application of engineering solutions to the problem which has been signaled by a large group of climate scientists. This paper addresses possible approaches to solving the problem of climate change by reducing greenhouse gas emissions (GHGEs). It considers the European Union’s emissions trading scheme (ETS) as an example of a market and government failure to achieve a reduction in emissions through a neoliberal approach to pricing emissions. The discussion then focuses on the design features of a carbon tax and some alternative policy instruments that could contribute to a solution to the problem and it raises the main advantages of a carbon tax over an ETS.