What’s the best policy for combating climate change?

Credit: Glen Gyssler

Jeff Cockrell | Feb 12, 2019

One of the difficulties of mitigating climate change is that when people or companies send carbon dioxide into the atmosphere—thereby contributing to a process that is raising global temperatures—they don’t pay the full environmental cost of that action. One solution to this problem is to tax carbon emissions, allowing the government to set a price equivalent to its estimate of the future costs of carbon usage. Another is a cap-and-trade system, in which the government sets a limit on carbon usage and allows companies to trade or sell their rights to emit carbon at a price set by the market. When Chicago Booth’s Initiative on Global Markets asked its US Economic Experts Panel which of these solutions is better, the respondents tended to favor a carbon tax—though a quarter of the panel said the answer was uncertain. A number of the experts noted that either policy would be preferable to doing nothing.

 

Judith Chevalier, Yale
“Depends. But of course, either better than status quo.”
Response: Uncertain

Kenneth Judd, Stanford
“A carbon tax imposes a uniform carbon price across all emissions. How do you cap my car’s annual CO2 emissions? Also, we need the revenue.”
Response: Strongly agree

José Scheinkman, Columbia 
“Carbon taxes greatly simplify market design, albeit with the risk of missing desired targets. This can be fixed by changing tax rates.”
Response: Agree