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.”
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.”