Market-Based Greenhouse Gas Emission Reduction Legislation: 108th Through 117th Congresses

"Congressional interest in market-based greenhouse gas (GHG) emission control legislation has fluctuated over the past 20 years. Market-based approaches that would address GHG emissions typically involve either a cap-and-trade system or a carbon tax or emissions fee program. Both approaches would place a price—directly or indirectly—on GHG emissions or their inputs, namely fossil fuels. Both would increase the price of fossil fuels, and both would reduce GHG emissions to some degree. Both would allow covered entities to choose the best way to meet their emission requirements or reduce costs, potentially by using market forces to minimize national costs of emission reductions. Preference between the two approaches ultimately depends on which variable policymakers prefer to precisely control—emission levels or emission prices

A primary policy concern with either approach is the economic impacts that may result. Expected energy price increases could have both economy-wide impacts (e.g., on the U.S. gross domestic product) and disproportionate effects on specific industries and particular demographic groups. The degree of these potential effects would depend on a number of factors, including the magnitude, design, and scope of the program and the use of tax or fee revenues or emission allowance values.

As the figure below illustrates, between the 108th and 111th Congresses, most of the introduced bills would have established cap-and-trade systems. Between the 112th and 117th Congresses, most of the introduced bills would have established carbon tax or emissions fee programs. The proposals ranged in the scope of emissions covered from CO2 emissions from fossil fuel combustion to multiple GHG emissions from a broader array of sources. In addition, the proposals differed by how, to whom, and for what purpose the fee revenues or allowance value would be applied. Some economic analyses indicate that policy choices to distribute the tax, fee, or emission allowance revenue would yield greater economic impacts than the direct impacts of the carbon price..."
Greenhouse Gas