Those who think that meeting the stabilization goal will be relatively painless see only small energy price increases as necessary. These folks rely on technical progress to bring forth efficiency increases. Further, they might want to augment a policy of price increases with government subsidies for energy related research and development and a continued reliance on mandated efficiency standards for energy-using equipment. On the other hand, those who believe that the stabilization goal will be difficult and painful to attain see a policy that leads to large price increases. They argue it is only significant price rises that will bring forth the needed conservation, technical innovation and fuel switching.
Policy makers can choose one of two routes leading to higher energy prices.
Thus, coal would carry the greatest tax, followed by petroleum and natural gas. A second approach, and one that has the benefit of not being called a tax, is a marketable permit. It would also require that anyone wishing to emit carbon would need a permit. These permits could be given away on the basis of past energy use or auctioned off by the government with the revenues used to reduce taxes or government deficits. Once you obtain a permit, it could used to emit carbon, or it could be sold to someone else that wanted to emit carbon.