The coming carbon market and its impact on the American economy

The likely centerpiece of U.S. legislation to address climate change will be a cap-and-trade program that creates a market for greenhouse gases (GHGs). Whether the onset of a cap-and-trade system and additional complementary policies would provide a benefit or a cost to our economy has been the subject of much modeling and debate. This paper argues that while climate policy does not come without cost, modeling of the Lieberman–Warner Climate Security Act demonstrates that these costs are not substantial and can be mitigated by appropriate policy design. Finally, while a well-designed carbon market will be a large factor in lowering costs and driving innovation, complementary policies will be necessary to induce the technological change required to transition the United States to a low-carbon economy.