ABSTRACT
This chapter looks at the rather faltering steps towards the introduction of an effective system of emissions trading in the European Union (EU) and China as a way of contributing towards the reduction in the overall level of harmful greenhouse gases in the environment and improving air quality. Policy makers are aware of the need to proceed with caution, because whilst emissions trading is creating market signals, which may help to reduce the total level of emissions over time, these market signals may also generate negative impacts in other sectors. The progress towards change and reform should be based on experience because all human activity is dynamic and not perfectly understood. Emissions taxes were the EU Commission’s first choice policy instrument. They are market-based instruments, which normally means that the more emissions into the environment the more tax is paid. The problem of trying to reduce emissions using taxation is that this might have an impact upon industrial competitiveness.
