There is general agreement that reductions of emissions would come at some cost to the economy and that the size of the cost depends largely on the size of the cuts and how rapidly they are carried out. Energy costs would very likely rise, at least for a time, and some industry sectors, it is generally agreed, could be hit hard if they were not able to adapt quickly enough. But many economists also say there are a number of ways to cut the costs substantially, through policy measures. One is by imposing a tax on fuels in proportion to their carbon content. The revenues from the tax would be used to reduce other federal taxes, thus pumping money back into the economy.
Many economists see a carbon tax as the most economically efficient way to reduce emissions.
But any sort of energy tax is likely to face deadly opposition in the Republican Congress. In this arrangement, the government sets an overall cap on emissions and issues permits to companies to emit carbon dioxide within that limit. Companies that find it more difficult and expensive to limit emissions could buy permits from those that find it easier and cheaper. The price of the permits is set in an open market. Proponents of this plan, already in use for industrial sulfur dioxide emissions, say it cuts overall costs significantly.