Carbon Policy Implementation: A Country-Level Analysis of Carbon Tax vs. Cap and Trade

Climate change is arguably the greatest issue faced by this generation. Mitigation requires an informed and motivated global effort in order to be effective. This paper examines the relationship between emissions from 1980-2020 along with relevant covariates, and carbon policy status, specifically a carbon tax and a cap and trade. An analysis of how the implementation of carbon policies impacts emissions helps to determine the most effective and efficient way to combat climate change. I first run a regression of covariates with emissions and find statistically significant factors that influence emissions: meat production, population, intellectual property charges, and infant deaths. I analyze policy implementation over time in relation to emissions and find with statistical significance that a decrease of 1 million tons of CO2 is associated with an increase in approximately 6 ± 3.150 years of a policy being implemented. Utilizing a linear comparison of carbon tax versus ETS, I find that emissions changes for countries with a cap and trade are 2.15% lower than countries with a carbon tax, which may suggest that it is a more effective carbon policy. Most recently, the COVID-19 pandemic lockdowns have led to record decreases in annual emissions for 2020. Based on a linear comparison, I determine that there was no statistical difference in emissions reductions throughout 2020 regardless of whether or not a country had a carbon policy implemented prior to the outbreak. Going forward, this paper calls for greater research attention on the impact of carbon policy implementation on emissions in order to best inform governments based on historical data and evidence towards choosing the most effective policy. Climate change is fundamentally time sensitive and our society cannot afford means of policy implementation that are ineffective or stagnant