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Highlights

Global climate change is one of the most significant long-term policy challenges facing the United States, and policies to mitigate climate change will have important economic, social, and environmental implications. Members of Congress have introduced several bills to address the problem of climate change, many of which establish domestic emissions pricing by requiring firms that emit greenhouse gases either to pay a tax or to hold emission allowances. Whichever approach is taken, domestic emissions pricing could produce environmental benefits by encouraging U.S. firms to reduce their emissions of greenhouse gases. But such pricing could also harm U.S. firms' competitiveness, especially in energy-intensive industries where firms compete internationally. Additionally, there could be increased emissions abroad if production were to increase in other countries as a result of increased domestic costs of production resulting from a U.S. climate policy (carbon leakage). To help reduce impacts on U.S. firms and prevent carbon leakage, several climate change bills have also included trade measures or output-based rebates. The bills have included trade measures that would require importers to purchase emission allowances or pay a border tax for the greenhouse gas emissions associated with their imports. They have also designed output-based rebates to financially rebate industries for the costs incurred under a domestic emissions pricing system.

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