Europe implemented a cap and trade system in 2005 to reduce greenhouse gas emissions, but it did not meet expectations in the first phase. The system probably gave out too many permits initially, leading to more emissions. Now, Europe is adjusting the system for 2013-2020, considering stricter criteria and possibly auctioning permits to reduce emissions effectively. The study suggests that a carbon tax could be a better alternative to meet environmental goals efficiently. This tax could be based on the social cost of emissions or a function measuring global warming levels. Such a tax might be more effective and fair than the current cap and trade system in Europe.