A Meaningful U.S. Cap-and-Trade System to Address Climate Change

Abstract

There is growing impetus for a domestic U.S. climate policy that can provide meaningful reductions in emissions of CO2 and other greenhouse gases. In this article, I propose and analyze a scientifically sound, economically rational, and politically feasible approach for the United States to reduce its contributions to the increase in atmospheric concentrations of greenhouse gases. The proposal features an up-stream, economy-wide CO2 cap-and-trade system which implements a gradual trajectory of emissions reductions over time, and includes mechanisms to reduce cost uncertainty. I compare the proposed system with frequently discussed alternatives. In addition, I describe common objections to a cap-and-trade approach to the problem, and provide responses to these objections.

Keywords: Cap-and-Trade System, Carbon Dioxide, Greenhouse Gas Emissions, Global Climate Change, Carbon Taxes

JEL Classification: Q540, Q280, Q380, Q480, Q580