Comparative analysis of environmental taxes and emission permits

Social and technological changes have led to significant environmental problems such as pollution and climate change. Countries use environmental tax and emission permits to combat these issues, which cause serious damage to human health, ecosystems, and the environment. Environmental tax and emission permit policies help both to reduce pollution and to generate additional revenue. With this additional revenue, low-income households are supported, the use of new environmentally friendly technologies is encouraged and the tax burden on other distortionary taxes in the economy is reduced, enabling countries to achieve their climate targets. The originality of this study lies in bringing the question of which of the environmental tax and emission permit policies is more effective to an econometric analysis. In this context, the aim of the study is to reveal which of the environmental tax and emission permit policies is more effective through theoretical and empirical analysis. For this purpose, the study will first provide information on international studies on environmental pollution and climate change, then examine environmental tax and emission permits policies in detail and look at the experiences of countries implementing these policies. Then, a theoretical analysis of environmental tax and emission permit policies is made under the headings of environmental efficiency, cost effectiveness, competitiveness, dynamic efficiency, revenue generation, flexibility, transparency, equity, administrative feasibility, compatibility with other objectives, macroeconomic effects and soft effects. Finally, a panel data analysis of the effectiveness of environmental tax and emission allowance policies for OECD countries was conducted. As a result of the study, both environmental policy instruments were found to be equivalent in terms of revenue generation. On the other hand, emission permits, which set strict limits on emissions in terms of dynamic efficiency, flexibility and competitiveness as well as environmental efficiency, are found to be a more effective policy instrument than environmental taxes. Environmental taxes, on the other hand, are found to be a more effective policy instrument than emission permits in terms of cost effectiveness, administrative feasibility and transparency. According to the results of the empirical analysis, emission permits are estimated to be a more effective policy instrument than environmental tax in the period when environmental policy instruments are implemented in terms of per capita emission reduction and recommendations are made to Turkey for the implementation of environmental policy instruments for the prevention of environmental pollution.