If you think carbon taxes and cap-and-trade are basically the same thing, this episode might change your mind.

For Episode 16, I’m joined by Jeroen van den Bergh (ICREA Research Professor at ICTA-UAB Barcelona) to unpack why carbon markets (ETS / cap-and-trade) may outperform carbon taxes, especially once you take bounded rationality seriously.

We discuss:

• Why the EU ETS scales across borders more easily than taxes
• How cap-and-trade can be politically more resilient (and sometimes “hidden”)
• Why markets can deliver higher carbon prices—and why that matters
• How a cap-and-trade system can self-correct when firms/people under-react to price signals
• What to do with the revenues (rebates, climate projects, innovation—what’s actually smart?)
• The potential progressiveness of Cap-and-Trade or Carbon taxes
• CBAM and Climate Clubs

Paper discussed: Pricing Instruments in Environmental and Climate Policy when Polluters are Boundedly Rational:  https://www.nature.com/articles/s44168-025-00284-9

For questions, comments or suggestions, you can contact me at arvid.viaene.ce@gmail.com