Economists generally regard carbon pricing as the best way to reduce greenhouse gas emissions, but putting such a mechanism into place is a complex process, a new Brookings Institution paper says. “When it comes to developing an actual policy, a host of devilish details arise. Any carbon levy legislation would have to address a number of key design decisions—and serious tradeoffs arise across nearly all of them. How, for example, would the policy balance giving certainty to firms that make long-term investments, but still allow for updates as information, technology, and outcomes evolve?” the July 8 letter says.
The paper lays out the following 11 questions that need to be answered when developing a carbon pricing mechanism:
- What is the name of the carbon pricing policy?
- What greenhouse gas (GHG) sources and gases does the policy cover?
- What’s the initial price and how does it change over time?
- Who pays the carbon charge?
- Who collects the revenue?
- What happens to the revenue?
- Does it change other Federal climate and energy policies, and if so how?
- Does it constrain state-level policies?
- Does it allow offsets (alternatives to paying a fee)?
- Does it give credits or rebates for certain activities?
- Does it include measures to reduce effects on U.S. competitiveness and emissions leakage?
