United States Climate Policy: Using Market-Based Strategies to Achieve Greenhouse Gas Emission Reductions

Abstract:     
Unwanted climate change is resulting from the emissions of greenhouse gases into the atmosphere by human activity. Pricing carbon through, for example, a cap-and-trade program or a tax on emissions, is thought to be one of the most effective and efficient potential mechanisms for reducing GHG emissions. This article analyzes the respective merits and drawbacks to a U.S. cap-and-trade system and a U.S. carbon tax. Treatment is also given to an optimal U.S. GHG reduction target. The article provides an overview of national, state, and international GHG policies and programs, and discusses prospective developments. Finally, the article provides an in-depth analysis and evaluation of the various design options available to carbon tax and cap-and-trade systems.

The prevailing wisdom is that there is no other single policy effect that promises to deliver as steep a curve in emissions for as large a part of the total emission inventory as pricing emissions. Pricing is the way to get both the short-term gains through efficiency and the longer-term gains from investments in research and switching to cleaner fuels.

Number of Pages in PDF File: 38

Keywords: greenhouse gas, carbon tax, global warming, climate change, Kyoto protocol, UNFCCC, emissions trading, cap-and-trade, EU ETS, upstream, downstream, emissions tax, renewable energy, borrowing, pricing, carbon dioxide, mitigation, targets, borrowing, offsets, safety valves

JEL Classification: K32,K33,Q3,Q38,Q4,Q43,Q48,Q42,Q2,O3,L9,L7,L71,L95

working papers series