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Issues in Designing U.S. Climate Change Policy

Abstract:
Over the coming decades, the cost of U.S. climate change policy likely will be comparable to the total cost of all existing environmental regulationÑperhaps 1-2 percent of national income. In order to avoid higher costs, policy efforts should create incentives for firms and individuals to pursue the cheapest climate change mitigation options over time, among all sectors, across national borders, and in the face of significant uncertainty. Well-designed national greenhouse gas mitigation policies can serve as the foundation for global efforts and as an example for emerging and developing countries. We present six key policy design issues that will determine the costs, cost-effectiveness, and distributional impacts of domestic climate policy: program scope, cost containment, offsets, revenues and allowance allocation, competitiveness, and R&D policy. We synthesize the literature on these design features, review the implications for the ongoing policy debate, and identify outstanding research questions that can inform policy development.

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Energy Specializations: Energy and the Environment – Climate Change and Greenhouse Gases; Energy and the Environment – Policy and Regulation

JEL Codes: Q54: Climate; Natural Disasters and Their Management; Global Warming, Q58: Environmental Economics: Government Policy, Q41: Energy: Demand and Supply; Prices, Q42: Alternative Energy Sources, Q35: Hydrocarbon Resources

Keywords: Climate change, policy, US emissions tax, cap-and-trade

DOI: 10.5547/ISSN0195-6574-EJ-Vol30-No3-9

Published in Volume 30, Number 3 of the bi-monthly journal of the IAEE's Energy Economics Education Foundation.

 

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