The Political Economy of Hybrid Approaches to a U.S. Carbon Tax: A Perspective from the Policy World

While market-based climate policy in the United States has been dominated by emissions trading, including policies at the state level and in proposed major federal legislation, a number of recent U.S. climate proposals focus on a carbon tax (or fee). Just as emissions trading programs have included some form of “price containment” measures, carbon tax policies may include “emissions assurance” provisions or, as we refer to them here, “environmental integrity mechanisms” (EIMs), which are designed to provide greater certainty about the resulting quantity of emissions. We propose three political economy reasons—as well as one practical reason relating to international climate agreements—that EIMs are likely to be an important component of any politically successful carbon tax (or fee) legislation in the U.S. Congress.