What’s the Best Policy for Combating Climate Change?

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.