The best strategy for cutting greenhouse gases and the use of fossil fuels.

The European Union established a trading program for carbon emissions in 2005. In the United States, a proposal for a similar system is at the center of the new administration’s energy policy. Under such programs, a regulatory authority sets a cap on total carbon emissions, and tradable emissions allowances are issued or auctioned off to industries. But many economists advocate a far simpler approach: a carbon tax levied directly on the production of fossil fuels.

Over the last several years, Gilbert Metcalf, an economist at Tufts University, has calculated the costs and consequences of such a policy. He explains to Technology Review editor David Rotman why a carbon tax is a good idea.
TR: How much revenue would a carbon tax raise in the U.S.? Who would get the money?

Gilbert Metcalf: For an initial tax of $15 per ton of carbon dioxide, I estimate that the tax would raise about $85 billion annually. The U.S. Treasury would get the money. But your real question is, What does the Treasury do with the money? I have proposed creating a tax credit in the personal income tax. That ensures that we don’t raise the overall tax burden during this recession and that we don’t disproportionately burden low-income households.

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