In addition, 14 of the 18 panelists were at least moderately  certain that the benefits of their suggested portfolio of actions would  outweigh the costs. Most of the panelists identified either a tax on  emissions or a cap-and-trade program with a safety valve as the preferred  mechanism to establish a price on emissions, and the majority believed a  portfolio of additional actions to address climate change could  complement the market-based mechanism. Some panelists also identified  general categories of benefits and costs associated with their  recommended actions, and rated the usefulness of benefit and cost  estimates derived from integrated assessment models. Overall the panel  rated estimates of costs as more useful than estimates of benefits for  informing congressional decision making, with some panelists citing  uncertainties associated with the future impacts of climate change as a  limitation to estimating benefits. All of the Panelists Agreed that the Congress Should Consider Establishing a Price On Greenhouse Gas Emissions, and the Majority Recommended Complementary Policies

All of the panelists agreed that the Congress should consider a market- based mechanism to establish a price on greenhouse gas emissions and  supported implementation of the policy by 2015. Under a hybrid approach, the government would establish a cap-and-trade  system with a safety valve, a mechanism under which the government  would sell additional permits if the market price exceeded a  predetermined level, which would represent the maximum permit price  and thus an upper limit on control costs. Another panelist recommending an  initial market price between $11 and $20 said that the safety valve should  depend on the stringency of the policy. Alternatively,  a downstream system would regulate sources such as electric utilities that  combust fossil fuels and emit greenhouse gases. 2 and app. When asked how certain they  were that their recommended portfolio of actions to address climate  change were economically justified, 14 of the 18 panelists were at least  moderately certain that the benefits of their suggested actions would  outweigh the costs. Panelists Rated Estimates of Costs of Actions to Address Climate Change as More Useful than Estimates of Benefits, Citing Uncertainties Associated with Future Impacts

Citing uncertainties associated with the potential future impacts of climate  change, and the difficulties of estimating their economic impacts, panelists  rated cost estimates from integrated assessment models as more useful for  informing congressional decision making than benefit estimates. While some panelists said that the United States should proceed  cautiously if it acts unilaterally, 16 of 18 panelists agreed that the United  States should establish a price on greenhouse gas emissions as soon as  possible, regardless of the extent to which other countries adopt similar  policies. Nonetheless, the majority of the panelists said that it was  important for the United States to participate in international negotiations  to facilitate climate agreements or to enhance the credibility or influence  of the United States. The Panelists’ Views on the Strengths and Limitations of Policy Options Focused Primarily on the Environmental Certainty of a Cap- and-Trade System versus the Efficiency of a Tax on Emissions

The panel provided their opinions on the strengths and limitations  associated with various policy options to address climate change, and  focused on the key trade-offs between a tax on emissions or a cap-and- trade system. These expert opinions should  be of assistance to the Congress in weighing the potential benefits and  costs of different policies for addressing climate change. The Most Important Trade- offs are between the Relative Effectiveness of Cap-and-Trade Systems and the Relative Efficiency of Taxes

When asked to identify their preferred policy options, 8 of the 18 panelists  said that they prefer a cap and trade with a safety valve as a way to  combine some elements of both a cap-and-trade system and a tax. Some  panelists noted that a traditional cap-and-trade system would provide  more environmental certainty; that is, it would more likely achieve specific  emissions reductions because the policy caps the total amount of  emissions at a specific level. Panelists identified the strengths and limitations of other policy options to  address climate change, such as subsidy reform for alternative fuels or  energy-efficient technologies and research and development into the basic  science of climate change. We contracted with the National Academy of Sciences (NAS) to select and  recruit a panel of experts with a range of in-depth experience assessing  the economic impacts of climate change policy. Scenarios of Greenhouse  Gas Emissions and Atmospheric Concentrations. Sea- Level Rise and Global Climate Change: A Review of Impacts to U.S. Nordhaus William D. “To Tax or Not to Tax?
Why GAO Did This Study

Elevated levels of greenhouse gases in the atmosphere and the resulting effects on the earth's climate could have significant environmental and economic impacts in the United States and internationally. Potential impacts include rising sea levels and a shift in the intensity and frequency of floods and storms. Proposed responses to climate change include adapting to the possible impacts by planning and improving protective infrastructure, and reducing greenhouse gas emissions directly through regulation or the promotion of low-emissions technologies. Because most U.S. emissions stem from the combustion of fossil fuels such as coal, oil, and natural gas, much of this report centers on the effect emissions regulation could have on the economy. In this context, GAO was asked to elicit the opinions of experts on (1) actions the Congress might consider to address climate change and what is known about the potential benefits, costs, and uncertainties of these actions and (2) the key strengths and limitations of policies or actions to address climate change. GAO worked with the National Academy of Sciences to identify a panel of noted economists with expertise in analyzing the economic impacts of climate change policies and gathered their opinions through iterative, Web-based questionnaires. The findings reported here represent the views of the 18 economists who responded to both questionnaires.

What GAO Found

All of the panelists agreed that the Congress should consider using a market-based mechanism to establish a price on greenhouse gas emissions, and 14 of the 18 panelists recommended additional actions as part of a portfolio to address climate change, such as investment in research and development of low-emissions technologies. Experts differed on the initial stringency of the market-based mechanism, with 14 of the 18 panelists recommending an initial price between less than $1 and $20 per ton of emissions. In addition, 14 of 18 panelists were at least moderately certain that the benefits of their recommended portfolio of actions would outweigh the costs. To establish a price on emissions, most of the panelists preferred either a tax on emissions or a hybrid policy that incorporates features of both a tax and a cap-and-trade program. A tax would set a fixed price on every ton of emissions, whereas a cap-and-trade program would limit or cap total emissions and establish a market for trading (buying and selling) permits to emit a specific amount of greenhouse gases. Under the cap-and-trade system, the market would determine the price of emissions. A hybrid system differs from a traditional cap-and-trade system in that the government would cap emissions, but could sell additional emissions permits if the permit price rose above a predetermined level. Panelists also identified general categories of benefits, such as avoided climate change damages, and costs, such as increases in energy prices, associated with their recommended actions. Overall the panel rated estimates of costs as more useful than estimates of benefits for informing congressional decision making, with some panelists citing uncertainties associated with the future impacts of climate change as limitations to estimating benefits. Further, the majority of panelists agreed that the United States should establish a price on greenhouse gas emissions as soon as possible regardless of the extent to which other countries adopt similar policies. At the same time, the majority of panelists said it was at least somewhat important to participate in international negotiations on climate change. Panelists identified key strengths and limitations of alternative policy approaches that should be of assistance to the Congress in weighing the potential benefits and costs of different policies for addressing climate change. Many panelists said that a cap-and-trade program would be more effective in achieving a desired level of greenhouse gas emissions because, unlike a tax, it would provide certainty that emissions wouldn't exceed a certain level. However, some of the panelists also said that taxes would be more cost-effective than a cap-and-trade program because the price of emissions would be certain and not susceptible to market fluctuations. Eight panelists therefore preferred a hybrid approach that incorporates features of both a tax and a cap-and-trade program. On average, the panelists rated cost effectiveness as the most important criterion for evaluating various policy options. Finally, panelists said an important strength of using a market-based approach is the ability for the government to raise revenue through a tax or the sale of emissions permits and to use that revenue to offset the adverse effects of the policy.