An economy-wide carbon price is a cost-effective strategy for achieving emission reductions. It works by making polluters pay for the emissions they generate. However, there are still several policy issues that need to be addressed, even when a carbon price is implemented. In particular, we need to understand how the price of carbon should interact with existing environmental regulations.
The price of carbon is the most basic and effective tool for reducing carbon emissions, as many countries have already discovered. Without it, progress towards climate mitigation goals may be hindered, reducing the global competitiveness of US companies and diminishing their commitment to climate problems on the global stage. First, the control program must specify a target, which can be an annual carbon emissions target, a limit on the concentration of CO2 in the atmosphere, a carbon tax rate, or some combination of these elements. Many argue that the price of carbon should be linked to the social cost of carbon (SCC), an estimate of the total economic damage associated with each ton of carbon emissions.
While carbon dioxide is the most important greenhouse gas, reducing emissions of other greenhouse gases such as methane may ultimately prove more cost-effective (Blitzer et al. Hundreds of projections of the cost of reducing carbon emissions have been published over the past decade, and this trend is likely to continue. For example, general equilibrium models may project lower carbon taxes required to achieve an emissions target, but greater GDP losses than energy sector models if they include a strong negative influence of higher energy prices on economic growth. A solid social cost of carbon is essential for good governance; it is an important basis for good decision-making, based on common-sense and long-standing economic principles.
This system limits carbon emissions to a specific level for a group of companies or industrial plants and then issues allowances according to this level. This effect also serves to reduce the effectiveness of revenue recycling as a means of reducing the net costs of imposing a carbon tax to reduce carbon emissions. In such a program, one country can pay for emission reductions in another country if it is less costly than the available domestic options. In the long term, assumptions made about the cost of conventional oil and gas substitutes determine the cost of controlling carbon emissions.
In any case, this assumption leads to a 30 to 40 percent reduction in the discounted cost of stabilizing emissions over the next 20 years. This moment presents an opportunity to re-examine what types of regulatory and regulatory changes are needed to ensure that reductions in air pollution and emissions are necessary for the health of the economy. This has led to the development of models that can provide a more realistic picture of the emission reduction potential in these individual countries (Blitzer et al.
