The Case for a Carbon Tax as US Climate Policy

Success in US climate policy equates to shepherding the energy system through a dramatic and uncertain transformation. Climate policies, in order to be successful, must be cost-effective and durable. Cost-effective because political reality supports a limited appetite for spending on climate change relative to other priorities. Durable because policies are politically costly to enact and must create credible incentives that produce change on the ground, even given substantial uncertainty about the future. Regulation under existing law, the Clean Air Act, promises to be credible but not cost-effective. Regulation via carbon pricing promises to be cost effective because it relies on diffuse information in markets to set priorities for reducing emissions. But different emission pricing policies, given that their goals are politically constrained, are not created equal. Recent cap-and-trade programs, if adopted, would not have proven durable given recent economic, technological, and social changes in the U.S. Today, members of Congress and some conservative groups support emission pricing via a carbon tax. A carbon tax, if enacted, would be cost effective, robust to forecast error, and credible in the face of economic, technological, and social change. Modeling evidence also suggests that it would be environmentally effective at modest cost to U.S. economic growth.

Speakers: Michael Wara, Associate Professor of Law, Stanford

John P. Weyant, Professor of Management Science and Engineering, Stanford