Carbon taxes and emission trading systems: Which one is more effective in reducing carbon emissions?—A meta-analysis

The effectiveness of carbon-pricing policies, specifically carbon taxes and emissions-trading systems (ETSs), in reducing carbon emissions remains a subject of debate, with mixed empirical evidence. This study aims to assess and compare the effectiveness of these two types of policies in reducing carbon emissions, identify factors that enhance their effectiveness, and provide practical policy recommendations. We perform a meta-analysis based on 81 studies published between 2011 and 2022, evaluating the impact of carbon taxes and ETSs on carbon emissions. Data for each study were manually collected, resulting in a sample of 2032 estimation results. We use four measures —a discrete measure categorizing effects as negative, positive, or non-significant and three continuous measures (one-tail p-value, overall correlation, and Fisher's z-score)—to quantify the effects and provide detailed information on the significance, direction, and magnitude of the relationship. The results show that both carbon taxes and ETSs reduce carbon emissions but that the effect of the carbon taxes is stronger than that of ETSs. These findings are consistent across all models and samples used in the studies. The results of the heterogeneity analysis of the effects of these policies suggest that country-level characteristics, such as financial development and GDP growth rates, can affect the effectiveness of both carbon taxes and ETSs. The reduction effect of carbon taxes is strongest in Asia (excluding Japan), while that of ETSs is strongest in the United States. Finally, carbon taxes and ETSs are particularly effective in reducing carbon emissions from carbon dioxide-intensive industries and fossil fuels. Carbon-pricing policies are therefore effective tools for reducing carbon emissions, though country and industry-specific factors can influence the effectiveness of these policies. Careful consideration of implementation strategies, economic structures, political commitment, technological advancements, and alternative energy sources is necessary to ensure the long-term effectiveness and sustainability of carbon-pricing policies. Overall, this study highlights the potential of carbon-pricing policies to address the environmental challenges associated with climate change and facilitate the achievement of carbon neutrality.