The Future of U.S. Carbon-Pricing Policy: Normative Assessment and Positive Prognosis

53 Pages Posted: 6 Jun 2019

See all articles by Robert N. Stavins

Robert N. Stavins

Harvard University - Harvard Kennedy School (HKS); Resources for the Future; National Bureau of Economic Research (NBER)

Date Written: May 28, 2019

Abstract

There is widespread agreement among economists – and a diverse set of other policy analysts – that at least in the long run, an economy-wide carbon pricing system will be an essential element of any national policy that can achieve meaningful reductions of CO2 emissions cost-effectively in the United States. There is less agreement, however, among economists and others in the policy community regarding the choice of specific carbon-pricing policy instrument, with some supporting carbon taxes and others favoring cap and trade mechanisms. This prompts two important questions. Which – if either – of the two major approaches to carbon pricing is superior in terms of relevant criteria, including but not limited to efficiency, cost-effectiveness, and distributional equity? And which of the two approaches is more likely to be adopted in the future in the United States? This paper addresses these questions by drawing on both normative and positive theories of policy instrument choice as they apply to U.S. climate change policy, and draws extensively on relevant empirical evidence. The paper concludes with a look at the path ahead, including an assessment of how the two carbon-pricing instruments can be made more politically acceptable.

Keywords: climate change, market-based instruments, carbon pricing, carbon taxes, emissions trading, cap-and-trade, performance standards, technology standards

JEL Classification: Q540, Q580, Q400, Q480

Suggested Citation

Stavins, Robert N., The Future of U.S. Carbon-Pricing Policy: Normative Assessment and Positive Prognosis (May 28, 2019). HKS Working Paper No. RWP19-017, Available at SSRN: https://ssrn.com/abstract=3399122 or http://dx.doi.org/10.2139/ssrn.3399122

Robert N. Stavins (Contact Author)

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