Abstract

Although the future extent and effects of global climate change remain uncertain, the expected damages are not zero, and risks of serious environmental and macroeconomic consequences rise with rising atmospheric greenhouse gas concentrations. Despite the uncertainties, reducing emissions now makes sense, particularly by using flexible policy approaches that can adjust as further scientific evidence accumulates. At the same time, historically high debt-to-GDP levels in the United States (and other countries), along with rising health care and social security spending, and calls to reform personal and in particular capital income taxes, suggest that new revenue sources (in addition to spending cuts) are an inevitable part of the fiscal future. Carbon taxes help to address both of these challenges.