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Chapter V Strategies for Climate Change Mitigation

the EU’s total greenhouse gas emissions. Since its launch in 2005, the EU ETS has driven
greenhouse gas emission reductions in the EU by setting a progressively decreasing cap on
total emissions. For example, the 2020 emissions cap under the EU ETS was 43% lower than
in 2005, while the EU’s greenhouse gas emissions decreased by over 20% accordingly.
However,carbon tradingimplementation also faces several challenges. First, setting the
emissions cap requires scientific and reasonable assessment: overly strict caps may lead to
excessively high allowance prices, impacting corporate competitiveness, while overly lenient
caps may fail to achieve emission reduction targets. Second,carbon tradingmarket liquidity
requires robust trading mechanisms and regulatory systems to ensure therationality of allow-
ance prices and market effectiveness. Finally,carbon tradingmechanisms must be coordinated
with other policy tools (such as carbon taxes and subsidies) to achieve optimal emission re-
duction outcomes.
(III) Other Economic Tools: Subsidies, Tax Incentives, and Green Finance
In addition to carbon tax andcarbon trading, other economic instruments (such as subsi-
dies, tax incentives, and green finance) have also played crucial roles in advancing the transi-
tion to a low-carbon economy.
1. Subsidies and Tax Incentives
Subsidies and tax incentives are fiscal measures employed by governments to encour-
age enterprises and individuals to invest in low-carbon technologies and clean energy. For
instance, governments can reduce the investment costs of renewable energy projects and pro-
mote the adoption of clean energy sources such as solar and wind power by providing sub-
sidies. Additionally, governments may lower production and utilization costs for low-carbon
technologies through tax incentives, such as offering tax exemptions for electric vehicles and
energy-efficient buildings.
2. Green Finance
Green finance is a crucial economic instrument for driving the transition to a low-car-
bon economy. It guides capital flows to low-carbon projects and clean energy sectors through
the resource allocation functions of financial markets. For instance, green bonds are specifi-
cally designed to fund environmental protection projects, with proceeds allocated to renew-
able energy, energy-efficient buildings, and ecological restoration. Additionally, green loans
and green investment funds provide low-cost financial support for low-carbon projects, fos-
tering the development of clean energy and low-carbon technologies.
(4) Synergistic Effects of Carbon Pricing and Other Economic Instruments
Carbon pricing and other economic instruments play a pivotal role in advancing the
low-carbon economic transition. Firstly, carbon tax andcarbon tradingcan incentivize enter-
prises and individuals to reduce greenhouse gas emissions through price signals and market
mechanisms, while subsidies, tax incentives, and green finance can lower investment costs
for low-carbon technologies through fiscal measures, promoting the adoption of clean en-
ergy. Secondly, the synergy between carbon pricing and other economic instruments can

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