Economic policy instruments are essential tools in the global effort to reduce greenhouse gas (GHG) emissions, which are primary drivers of climate change. These instruments use economic incentives and disincentives to influence the behavior of individuals, businesses, and governments, promoting low-carbon choices and discouraging carbon-intensive activities. The rationale behind economic policy instruments is rooted in the principle of internalizing externalities, where the social costs of carbon emissions are reflected in market transactions, thereby encouraging environmentally responsible behavior. One of the most widely used economic policy instruments is carbon pricing, which includes both carbon taxes and emissions trading systems (ETS), also known as cap-and-trade schemes. A carbon tax directly sets a price per ton of CO₂ emitted, creating a financial incentive for emitters to reduce their carbon footprint. By increasing the cost of fossil fuels, energy-intensive products, and polluting processes, carbon taxes encourage firms and households to shift toward cleaner energy sources and more efficient technologies. For instance, countries like Sweden and Canada have implemented carbon taxes that have successfully driven reductions in GHG emissions while generating public revenue, which can be reinvested in renewable energy projects or climate adaptation initiatives. Emissions trading systems, on the other hand, set a cap on total emissions for a sector or economy and allow the trading of emission allowances among firms. Companies that can reduce emissions at lower costs can sell their excess allowances to firms facing higher reduction costs, ensuring that emissions reductions occur where they are most economically efficient. The European Union Emissions Trading System (EU ETS) is a prominent example, covering power generation and industrial sectors and providing market-based incentives to invest in cleaner technologies. Over time, the cap is gradually reduced, driving further emissions cuts. Subsidies and financial incentives for low-carbon technologies and renewable energy also play a significant role as economic policy instruments. Governments can offer tax credits, grants, or low-interest loans to encourage investments in solar, wind, hydroelectric, and other clean energy sources. Subsidies reduce the upfront costs and financial risks associated with adopting these technologies, promoting faster deployment and helping economies transition away from fossil fuels. Additionally, incentives can target energy efficiency improvements in buildings, transportation, and industrial processes, lowering overall energy demand and