Compatibility of a federal carbon tax and other policies that reduce emissions

 

A federal carbon tax would be a significant step toward slashing greenhouse gas emissions in the United States, but adding a carbon tax to current policies is insufficient to achieve an emissions target at the lowest cost. Policymakers should examine whether other new policies are needed alongside a carbon tax and whether existing policies should be changed or eliminated.

To provide policymakers with information to help make these decisions, we developed a framework for considering the interactions between a federal carbon tax and other policies that influence greenhouse gas emissions. We identify policies and programs that are “complementary” or “redundant" to a carbon tax.

A policy is defined as complementary if it:

  1. enables more cost-effective reductions of greenhouse gas emissions than a carbon tax would achieve on its own; or

  2. reduces greenhouse gas emissions and achieves a separate policy objective more cost-effectively than a federal carbon tax would on its own.

Conversely, a policy is defined as redundant with a federal carbon tax if it leads to additional costs to society without achieving additional emissions reduction.

Real-world policies often do not fall cleanly into either category and neither specifying the framework nor making the categorizations is an exact science. It is often difficult to identify a policy’s objective or evaluate its cost-effectiveness. In addition, the extent to which a policy complements a carbon tax depends on the nature of the carbon tax. Most obviously, with a lower carbon tax rate, fewer emission reductions would be achieved, and additional policies may be needed to make up the difference between the outcome and a science-based emissions reduction target.

The following table uses our framework to characterize policies that reduce greenhouse gas emissions. By putting your cursor over the policy category, you will find a short rationale for the characterization. More information can be found in the full report here.

Complementary       Redundant

Regulations of GHG emissions not covered by the carbon tax

Regulations of local air pollutants

Removing fossil fuel subsidies

Energy efficiency standards and programs

Funding innovation in low carbon technologies

Public infrastructure supporting low carbon transportation and land use

Fuel economy standards

Subsidies for low-carbon technologies

Renewable or low-carbon fuel standards

State carbon pricing policies

Fuel excise taxes

Renewable or clean electricity standards

Regulations of GHG emissions covered by the carbon tax