Climate Change and Human Response to Sustainable Environmental Governance Policy: Tax or Emissions Trading?

Abstract

With climate change, humans are looking for effective ways to improve the ecological environment and provide comfortable survival space for sustainable development. There are two main economic methods for controlling environmental pollution: emissions fees (Pigouvian taxes) and emissions standards (emissions trading). However, the two policies have their applicable conditions in dealing with different sources of pollution and dynamic ecosystems, and many problems will arise if they are misused. This paper theoretically proves that significant (minor) pollution sources could satisfy the condition that the benefit function’s curvature is greater (less) than that of the cost function. When the speed of ecological absorption is constant, a price policy controlling significant pollution sources will generate uncertainty; the quantity policy will generate a higher total social cost of managing the minor pollution source. When the speed of ecological absorption is not constant, adjusting the number of part pollution permits will lead to two kinds of pollutant leakage. If the pollution permits can be freely circulated, it will lead to the pollution of regional b (less regulated areas) inflow into the region a (more regulated areas); if permits are not freely circulated, otherwise not.