On February 13, the non-partisan Congressional Budget Office (CBO) released a report saying that the "most efficient" way of dealing with global warming, in terms of limiting economic costs and achieving environmental benefits, is a carbon tax.
The study found that a tax on greenhouse gas (GHG) emissions from coal, oil and other fossil fuels would provide the commercial and industrial sectors with certainty from year-to-year on how much money they would need to spend to deal with climate change. The study, which was done at the request of Senate Energy and Natural Resources Committee Chairman Jeff Bingaman (D-NM), also found that a carbon tax could lead to climate benefits several times greater than what would be seen from policies that were not aimed at limiting economic costs. CBO said that businesses would have "an incentive to undertake more emission reductions when the cost of doing so was relatively low and allow them to reduce emissions less when the cost of doing so was particularly high."
However, a carbon tax is politically unpopular in Congress, as lawmakers have, instead focused their efforts on legislation to implement a cap-and-trade system. The CBO study said that the next-best approach to a carbon-tax would be to implement S. 1766, the Bingaman-Specter (R-PA) cap-and-trade bill. CBO said that the inclusion of a "safety-valve," which would limit the costs associated with industry compliance, offered companies some flexibility in addressing the issue.
The CBO study also analyzed S. 2191, the Lieberman-Warner bill, which uses a "circuit breaker" approach, where the government could step in and stop the need to reduce emissions if the cost of CO2 credits went beyond a certain price level. According to the CBO, "such interventions could aggravate price fluctuations if those judgments were incorrect."