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Climate Change
Global climate change is one of the nation's most significant long-term policy challenges: Human activities are producing increasingly large quantities of greenhouse gases, particularly carbon dioxide, and their accumulation in the atmosphere is expected to affect regional climates throughout the world. Although the economic and social costs from climate change remain highly uncertain, there is some risk that they will turn out to be quite large. The associated risks could be reduced by policies that reduced emissions of greenhouse gases.
Efforts to limit greenhouse-gas emissions probably would yield long-term economic benefits by avoiding damages from climate change in the future, but they also would impose economic costs now, primarily by restricting the use of fossil fuels. Those costs could be minimized by policies that provided broad incentives to reduce emissions, relying on markets to do so where it was most economically efficient. Different incentive-based approaches could have substantially different effects both on economic efficiency and on equity (that is, on how the costs were distributed among businesses and individuals).
One approach would be to levy a gradually rising tax on sellers or consumers of fossil fuels in proportion to the carbon dioxide emitted in burning those fuels. Another approach would be to establish a "cap-and-trade" program: The government would set gradually tightening limits on emissions, issue rights (or allowances) corresponding to those limits, and then allow firms to trade the allowances.
Either approach would create an incentive to reduce emissions at a lower cost than "command and control" regulations that specify when, where, and possibly how, emission reductions must take place. But not all incentive-based policies would be equally cost-effective. Policies that allowed individuals and firms flexibility to cut emissions less in years when it was costly to do so (for instance, because of an unusually cold winter or a disruption in energy markets) while motivating them to undertake greater reductions in relatively low-cost years, could reduce the cost of meeting a long-term target for emissions.
On the basis of various proposals recently considered by the Congress, emission allowances (or emission tax revenues) might be worth between $50 billion and $300 billion per year (in 2007 dollars) by 2020. How policymakers decided to allocate allowances (or use the revenues) would influence the impact of the policy on the economy, businesses, and individuals. Given the potential value of the allowances and their liquidity, CBO decided that the value of allowances given away by the government should be reflected in the federal budget. Cost estimates should show, both as revenues and outlays, the value of any allowances created and distributed at no cost to the recipient.
CBO has a team of economists, budget analysts, and other policy specialists examining the economic and budgetary consequences of climate change. This web page provides links to many of the agency's documents and activities on the topic.
Publications & Cost Estimates
All Documents
Managing Allowance Prices in a Cap-and-Trade Program
November 2010pdfblog post
Using Biofuel Tax Credits to Achieve Energy and Environmental Policy Goals
July 2010summarypdfblog post
How Policies to Reduce Greenhouse Gas Emissions Could Affect Employment
May 5, 2010pdfblog post
Economic and Budget Issue Brief
Annual Estimates of the Loss in Households' Purchasing Power Under H.R. 2454
April 20, 2010pdfblog post
Letter to the Honorable Christopher H. Smith
Federal Climate Change Programs: Funding History and Policy Issues
March 2010pdfblog post
S. 1733, Clean Energy Jobs and American Power Act
December 16, 2009pdfblog post
Cost estimate for the bill as ordered reported by the Senate Committee on Environment and Public Works on November 5, 2009
Responses to Questions About CBO's Analysis of H.R. 2454, the American Clean Energy and Security Act of 2009
December 11, 2009pdf
Letter to the Honorable Henry A. Waxman
The Use of Agricultural Offsets to Reduce Greenhouse Gases
December 3, 2009htmlpdfblog post
Testimony before the Subcommittee on Conservation, Credit, Energy, and Research, Committee on Agriculture, U.S. House of Representatives
The Costs of Reducing Greenhouse-Gas Emissions
November 23, 2009pdfblog post
Economic and Budget Issue Brief
The Economic Effects of Legislation to Reduce Greenhouse-Gas Emissions
October 14, 2009pdfblog post
Testimony before the Committee on Energy and Natural Resources, United States Senate
The Economic Effects of Legislation to Reduce Greenhouse-Gas Emissions
September 2009pdfblog post
How Regulatory Standards Can Affect a Cap-and-Trade Program for Greenhouse Gases
September 16, 2009htmlpdfblog post
Economic and Budget Issue Brief
The Use of Offsets to Reduce Greenhouse Gases
August 3, 2009htmlpdfblog post
Economic and Budget Issue Brief
Two Recent Studies of Regional Differences in the Effects of Policies That Would Price Carbon Dioxide Emissions
July 9, 2009pdfblog post
Letter to the Honorable James M. Inhofe
H.R. 2998, American Clean Energy and Security Act
June 26, 2009pdf
Cost estimate for the bill as amended and reported by the House Committee on Rules on June 26, 2009
The Estimated Costs to Households From the Cap-and-Trade Provisions of H.R. 2454
June 19, 2009htmlpdfadditional infoblog post
Letter to the Honorable Dave Camp
Responses to Questions About the Cost of a Cap-and-Trade Program
June 12, 2009htmlpdf
Letter to the Honorable John F. Kerry
Preliminary Information on the Budgetary Impact of Distributing Carbon Emission Allowances
May 21, 2009pdf
Letter to the Honorable Joe Barton
Assessment of Potential Budgetary Impacts from the Introduction of Carbon Dioxide Cap-and-Trade Policies
May 15, 2009pdf
Letter to the Honorable Henry A. Waxman
The Distribution of Revenues from a Cap-and-Trade Program for CO2 Emissions
May 7, 2009htmlpdfwebcastblog post
Testimony before Committee on Finance, United States Senate
Potential Impacts of Climate Change in the United States
May 2009htmlpdfblog post
Background Paper: How CBO Estimates the Costs of Reducing Greenhouse-Gas Emissions
April 2009pdfblog post
The Impact of Ethanol Use on Food Prices and Greenhouse-Gas Emissions
April 2009htmlpdfblog post
Flexibility in the Timing of Emission Reductions Under a Cap-and-Trade Program
March 26, 2009htmlpdfblog post
Testimony before the Committee on Ways and Means, U.S. House of Representatives
The Distributional Consequences of a Cap-and-Trade Program for CO2 Emissions
March 12, 2009htmlpdfwebcastblog post
Testimony before the Subcommittee on Income Security and Family Support, Committee on Ways and Means, U.S. House of Representatives
The Role of the 25 Percent Revenue Offset in Estimating the Budgetary Effects of Legislation
January 13, 2009pdf
Economic and Budget Issue Brief
Preparing for Our Common Future: Policy Choices and the Economics of Climate Change
October 2008pdfblog post
CBO Director Peter Orszag's presentation for the Goldman Lecture in Economics, Wellesley College
Climate-Change Policy and CO2 Emissions from Passenger Vehicles
October 6, 2008htmlpdfblog post
Economic and Budget Issue Brief
Issues in Designing a Cap-and-Trade Program for Carbon Dioxide Emissions
September 18, 2008htmlpdfblog post
Testimony before the Committee on Ways and Means, U.S. House of Representatives
Options for Offsetting the Economic Impact on Low- and Moderate-Income Households of a Cap-and-Trade Program for Carbon Dioxide Emissions
June 17, 2008pdfblog post
Letter to the Honorable Jeff Bingaman
S. 3036, Lieberman-Warner Climate Security Act of 2008
June 2, 2008pdfblog post
Cost estimate for a substitute amendment for S. 3036 transmitted to CBO on June 2, 2008
Containing the Cost of a Cap-and-Trade Program for Carbon Dioxide Emissions
May 20, 2008htmlpdfwebcastblog post
Testimony before the Committee on Energy and Natural Resources, United States Senate
Nuclear Power's Role in Generating Electricity
May 2008htmlpdfadditional infoblog post
Implications of a Cap-and-Trade Program for Carbon Dioxide Emissions
April 24, 2008htmlpdfwebcastblog post
Testimony before the Committee on Finance, United States Senate
S. 2191, America's Climate Security Act of 2007, with an amendment
April 10, 2008pdfblog post
Cost estimate for the bill as ordered reported by the Senate Committee on Environment and Public Works on December 5, 2007, with a proposed amendment transmitted to CBO on April 9, 2008
Policy Options for Reducing CO2 Emissions
February 2008htmlpdfblog post
Costs of Reprocessing Versus Directly Disposing of Spent Nuclear Fuel
November 14, 2007htmlpdfwebcast
Testimony before the Committee on Energy and Natural Resources, United States Senate
Approaches to Reducing Carbon Dioxide Emissions
November 1, 2007htmlpdfwebcast
Testimony before the Committee on the Budget, U.S. House of Representatives
The Potential for Carbon Sequestration in the United States
September 2007pdf
Supplemental Information About Trade-Offs in Allocating Allowances for CO2 Emissions
July 9, 2007htmlpdf
Letter to the Honorable Jeff Bingaman
Trade-Offs in Allocating Allowances for CO2 Emissions
April 25, 2007htmlpdf
Evaluating the Role of Prices and R&D; in Reducing Carbon Dioxide Emissions
September 2006pdf
China's Growing Demand for Oil and Its Impact on U.S. Petroleum Markets
April 2006pdf
CBO's Comments on the White Paper "Design Elements of a Mandatory Market-Based Greenhouse Gas Regulatory System"
March 13, 2006pdf
Letter to the Honorable Jeff Bingaman
Limiting Carbon Dioxide Emissions: Prices Versus Caps
March 15, 2005htmlpdf
Uncertainty in Analyzing Climate Change: Policy Implications
January 2005htmlpdf
The Economic Costs of Fuel Economy Standards Versus a Gasoline Tax
December 2003htmlpdf
Issues in the Design of a Cap-and-Trade Program for Carbon Emissions
November 25, 2003htmlpdf
Prospects for Distributed Electricity Generation
September 2003htmlpdf
Shifting the Cost Burden of a Carbon Cap-and-Trade Program
July 2003htmlpdf
The Economics of Climate Change: A Primer
April 2003htmlpdf
S. 556, Clean Power Act of 2002
November 18, 2002htmlpdf
Cost estimate for the bill as ordered reported by the Senate Committee on Environment and Public Works on June 27, 2002
An Evaluation of Cap-and-Trade Programs for Reducing U.S. Carbon Emissions
June 2001htmlpdf
Who Gains and Who Pays Under Carbon-Allowance Trading?
June 2000htmlpdf
Climate Change and the Federal Budget
August 1998htmlpdf