Abstract

With increasing likelihood of legislation or regulation of greenhouse gas emissions in the U.S., and with a solidifying world consensus for action on climate change, the question of regulatory instrument choice has taken on new urgency. This paper discusses four different policy instruments that are likely to be utilized, and argues that the most important step that can be taken right now is for the U.S. to impose a carbon tax. This paper argues that the three other likely federal policy instruments - a cap-and-trade program, "command-and-control"-type policies or standards, and government subsidies - are generally economically and environmentally inferior. This is not to say that a carbon tax is the only instrument that can be used to reduce greenhouse gas emissions, but that it should be the first and most central U.S. federal policy. This argument extends to other countries with market economies, most notably neighboring Canada, which has many cultural similarities to the U.S., including a strong political allergy to taxes. This is clearly not, in its general form, a novel thesis. However, this paper makes several new arguments, and seeks to provide a comprehensive review of the arguments for a carbon tax.