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Carbon Tax Best, Says Budget Office

November 26, 2007 | A version of this story appeared in Volume 85, Issue 48

A tax on carbon emissions, rather than a carbon-emissions trading system, would result in deeper CO2 reductions at lower cost, says a report by the nonpartisan Congressional Budget Office. A tax creates certainty about the cost of emissions reduction, the office said, allowing firms to figure how best to control the impact of the expenditure. A cap-and-trade program allows firms to know the size of the cap and the quantity of emissions required, but companies will not know what the cost of compliance will be when buying emissions tonnage. The certainty of a tax would allow companies to time their compliance decisions, and therefore compliance is likely to have less of an impact on the bottom line. Despite CBO recommendations, Congress is unlikely to institute a tax due to the unpopularity of tax proposals. Earlier this year, Rep. John D. Dingell (D-Mich.) proposed a general carbon tax but quickly withdrew the idea from consideration. The CBO report also warned that scientific uncertainties in calculating CO2 releases could result in a 50% plus or minus error in projected emissions of greenhouse gases over the long term.


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