Achieving U.S. Emissions Targets with a Carbon Tax provides insight on how incorporating emissions target mechanism into a strong national carbon tax can help ensure intended emission cuts are achieved. This mechanism establishes predictable ways of adapting the carbon pricing program over time to respond to any shortfall in emissions reductions. The report describes a basic two-step process– periodic evaluation of whether emissions reductions are on track to meet targets followed by an adjustment mechanism if reductions are less than anticipated.
This report highlights following points:
- Adding an “emissions target mechanism” to a carbon tax will help to ensure that national emissions targets are achieved.
- Such a mechanism would involve a periodic evaluation of whether greenhouse gas (GHG) emissions levels are too high, and if so, would ensure a policy change is triggered.
- The policy change may involve adjustments to carbon tax rates, increasing government spending in ways that reduce emissions, or activating a “back-stop” policy or regulation.
- Emissions targets can be achieved most cost-effectively when a carbon tax is supplemented by complementary policies.
- Policies that are likely to complement a carbon tax include those that support low carbon innovation, encourage energy savings from customers, target different emissions sources, or target different policy objectives.
- The importance of emissions target mechanisms and additional policies alongside a carbon tax depends on the tax rate and other details of the carbon tax policy.