Full Title: Carbon Pricing and Regulations Compared: An Economic Explainer
Author(s): Shuting Pomerleau, Ed Dolan
Publisher(s): Niskanen Center
Publication Date: September 21, 2021
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There is a broad consensus that the world faces a serious threat from climate change, and that reduction of greenhouse gas emissions, eventually to net-zero, is essential to mitigating that threat. There is less consensus, however, on how to go about it.
The two leading options for reducing greenhouse gas emissions (or carbon emissions, for short) are carbon pricing and command-and-control regulations. The former relies on markets to achieve emission reductions while the latter relies on regulations, such as performance standards and technology mandates. Carbon pricing and command-and-control regulations both remain in contention, either as alternatives or as complementary policies.
This paper is intended to serve as an economic explainer comparing carbon pricing policies to regulatory policies. It introduces the economic basics of carbon pricing, provides a detailed comparison of carbon pricing and regulations, and discusses the potential impact of the interaction of the two types of policies.