📄 Abstract
Carbon pricing has emerged as one of the most viable policy instruments to cut GHG emissions and meet global climate goals. Carbon tax and cap-and-trade systems are the two most used pricing mechanisms among various pricing instruments. This article conducts an in-depth comparative analysis of the different models by assessing their performance along key dimensions: emission reduction performance, cost efficiency, administrative feasibility, innovation incentives, revenue use, and sectoral coverage. The study leverages a review of global case studies, policy reports, and empirical research to appraise the strengths of each instrument. It seems clear that carbon taxes guarantee price certainty, administrative simplicity, and predictable revenue streams, while cap-and-trade systems provide certainty in emissions, market flexibility, and cost-effective compliance options. While they have their respective merits, there is a shocking lack of integrated comparative frameworks and evidence from developing and coal-dependent countries in the literature. This paper fills these knowledge gaps by synthesizing multi-disciplinary insights and identifying contextual conditions when each of these mechanisms performs best. From this rationale, it is observed that no single instrument works as universally better but, instead, depends on economic structure, regulation capacity, and political acceptance. The paper finds that a hybrid carbon pricing approach-a combination of the stability that carbon taxes provide with the flexibility of cap-and-trade-offers the most balanced solution for countries pursuing long-term decarbonization.
🏷️ Keywords
📚 How to Cite:
Mr Kukudala Sai Teja, Dr. R S Ch Murthy Chodisetty , CARBON CREDITS AS FINANCIAL INSTRUMENTS: IMPLICATIONS FOR INVESTMENT DECISIONS , Volume 13 , Issue 1, January 2026, EPRA International Journal of Economics, Business and Management Studies (EBMS) ,