Working Paper: NBER ID: w17488
Authors: Joseph E. Aldy; Robert N. Stavins
Abstract: Emissions of greenhouse gases linked with global climate change are affected by diverse aspects of economic activity, including individual consumption, business investment, and government spending. An effective climate policy will have to modify the decision calculus for these activities in the direction of more efficient generation and use of energy, lower carbon intensity of energy, and - more broadly - a more carbon-lean economy. The only approach to doing this on a meaningful scale that would be technically feasible and cost-effective is carbon pricing, that is, market-based climate policies that place a shadow-price on carbon dioxide emissions. We examine alternative designs of three such instruments - carbon taxes, cap-and-trade, and clean energy standards. We note that the U.S. political response to possible market-based approaches to climate policy has been and will continue to be largely a function of issues and structural factors that transcend the scope of environmental and climate policy.
Keywords: climate change; carbon pricing; market-based policy; cap-and-trade; carbon tax
JEL Codes: Q40; Q48; Q54; Q58
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| carbon pricing (Q58) | reduced greenhouse gas emissions (Q54) |
| carbon pricing (Q58) | more efficient energy generation and use (Q41) |
| carbon pricing (Q58) | innovation in low-emission technologies (Q55) |
| cap-and-trade system (Q58) | reduced emissions (Q52) |
| market-based climate policies (Q58) | innovation in low-emission technologies (Q55) |