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Climate change is driven by the buildup of greenhouse gases (GHGs) in the atmosphere, which is predominantly the result of the world’s consumption of fossil fuels. GHGs are a global pollution externality for which a global solution is required. I describe the role a domestic carbon tax could play in reducing U.S. emissions and compare and contrast alternative approaches to reducing our GHG pollution. Carbon taxes have been implemented in 23 jurisdictions around the world. I provide evidence on emission reductions and the economic impact of British Columbia’s carbon tax, a broad-based carbon assessment that has been in effect for over a decade. I also provide an analysis of carbon taxes used in the countries that belong to the European Union.

Aggregate energy intensity in the United States has been declining steadily since the mid-1970s and the first oil shock. Energy intensity can be reduced by improving efficiency in the use of energy or by moving away from energy-intensive activities. At the national level, I show that roughly threequarters of the improvements in U.S. energy intensity since 1970 results from efficiency improvements. This should reduce concerns that the United States is off-shoring its carbon emissions. A state-level analysis shows that rising per capita income and higher energy prices have played an important part in lowering energy intensity.Price and income predominantly influence intensity through changes in energy efficiency rather than through changes in economic activity. In addition, the empirical analysis suggests that little policy intervention will be needed to achieve the Bush Administration goal of an 18 percent reduction in carbon intensity by the end of this decade.

The United States is moving closer to enacting a policy to reduce domestic emissions of greenhouse gases. A key element in any plan to reduce emissions will be to place a price on greenhouse gas emissions. This paper discusses the different approaches that can be taken to price emissions and assesses their strengths and weaknesses.

Joining jurisdictions can increase efficiency of mitigation The November 2017 negotiations in Bonn, Germany, under the auspices of the United Nations Framework Convention on Climate Change (UNFCCC) validated that the Paris Agreement has met one of two necessary conditions for success. By achieving broad participation, including 195 countries, accounting for 99% of global greenhouse gas (GHG) emissions ( 1 ), the agreement dramatically improves on the 14% of global emissions associated with countries acting under the Kyoto Protocol ( 2 ), the international agreement it will replace in 2020. But the second necessary condition, adequate collective ambition of the nationally determined contributions (NDCs) that countries have individually pledged, has not been met. One promising approach to incentivize countries to increase ambition over time is to link different climate policies, such that emission reductions in one jurisdiction can be counted toward mitigation commitments of another jurisdiction. Drawing on our research and our experiences in Bonn, we explore options and challenges for facilitating such linkages in light of the considerable heterogeneity that is likely to characterize regional, national, and subnational policy efforts.

Policymakers often express concern about the impact of carbon taxes on employment or GDP. Using a new dataset on carbon tax rates, we estimate the macroeconomic impacts of these taxes on GDP and employment growth rates for various specifications and samples. Our point estimates suggest a zero to modest positive impact on GDP and total employment growth rates. More importantly, we find no robust evidence of a negative effect of the tax on employment or GDP growth. For the European experience at least, we find no support for the view that carbon taxes are job or growth killers.

Federal tax policy provides a broad array of incentives for energy investment. I review those policies and construct estimates of marginal effective tax rates for different energy capital investments as of 2007. Effective tax rates vary widely across investment classes. I then consider investment in wind generation capital and regress investment against a user cost of capital measure along with other controls. I find that wind investment is strongly responsive to changes in tax policy. On the basis of the coefficient estimates, the elasticity of investment with respect to the user cost of capital is in the range of −1 to −2. I also demonstrate that the federal production tax credit plays a key role in driving wind investment over the past 18 years.

Information provision is a key element of government energy-efficiency policy, but the information that is provided is often too coarse to allow consumers to make efficient decisions. An important example is the ubiquitous yellow \"Energy-Guide\" label, which is required by law to be displayed on all major appliances sold in the United States. These labels report energy cost information based on average national usage and energy prices. We conduct an online stated-choice experiment to measure the potential welfare benefits from labels tailored to each household's state of residence. We find that state-specific labels lead to significantly better choices. Consumers choose to invest about the same amount overall in energy efficiency, but the allocation is much better with more investment in high-usage high-price states and less investment in low-usage low-price states.

This paper presents a novel methodology for estimating impacts on domestic supply of oil and natural gas from changes in the tax treatment of oil and gas production. Using this approach along with simple market models for oil and natural gas, it finds that removing the major tax preferences for the oil and gas industry would have modest impacts on global oil production, consumption, or prices. Domestic oil and gas production is estimated to decline by 4%–5% over the long run. Global oil prices would rise by less than 1%. Domestic natural gas prices are estimated to rise by 7%–10%.

This paper measures the direct and indirect incidence of a carbon tax using current income and two measures of lifetime income to rank households. Our results suggest that carbon taxes are more regressive when annual income is used as a measure of economic welfare than when lifetime income measures are used. Further, the direct component of the tax, in any given year, is significantly more regressive than the indirect component. We observe a modest shift over time with the direct component of carbon taxes becoming less regressive and the indirect component becoming more regressive. These effects mostly offset each other and the distribution of the total tax burden has not changed much over time. In addition we find that regional variation has fluctuated over the years of our analysis. By 2003 there is little systematic variation in carbon tax burdens across regions of the country.