Evaluating the role of prices and r & d in reducing carbon dioxide emmissions: a CBO paper

Original publisher: [Washington, D.C.] : Congress of the United States, Congressional Budget Office, [2006] OCLC Number: (OCoLC)71521862 Subject: Air -- Pollution -- Government policy -- United States -- Finance. Excerpt: ... CHAPTER TWO POLICIES FOR REDUCING CARBON EMISSIONS 7 as electricity, would provide incentives for emitters to Setting a current price for carbon emissions and an-make changes in their behavior or operations that would nouncing planned future carbon prices not only would conserve energy ( such as driving less and turning down induce firms and households to change their behavior but thermostats ); to invest in more-efficient appliances and also would increase their demand for technologies that equipment; and to make greater use of renewable fuels to would reduce emissions. That increase in demand would heat water and power vehicles. The carbon price would in turn create incentives for firms to research and develop also provide an incentive for electricity producers to de-new methods of improving energy efficiency, producing crease the carbon intensity of the electricity that they pro-4 energy from renewable sources, and sequestering carbon. duced. That decrease could be accomplished by switching Moreover, as firms gain more experience with low-carbon to fossil fuels with lower carbon contents ( for example, from coal to natural gas ), by generating electricity from technologies, they may learn how to produce them at a 5 nuclear power or renewable fuels, or from converting coal lower cost. 2 The to gas and capturing and sequestering the carbon. magnitude of the incentive created for those activities Some researchers suggest that future carbon taxes would 3 would depend on the price of the carbon. not provide adequate incentives for R & D if a firm antici-pated that policymakers might lower the carbon tax - Carbon pricing would encourage cost-effective reduc-and thus reduce the firm's return on its R & D invest-tions in emissions at a...