Carbon tax has been popping back up on the radar this week. First, the Congressional Budget Office included a carbon tax in a myriad of ideas to reduce the federal deficit. There are a bunch of energy-related measures in there but the one that stands out to me is the carbon tax. According to the CBO's estimates a tax on greenhouse gas emissions would reduce the deficit by $1.06 trillion over the next ten years.


Now, Brad Plumer at The Washington Post asks the trillion dollar question: "Could the EPA push a carbon tax on its own?"

The answer is: maybe.

Basically, EPA has authority to set federal guidelines for carbon emissions from existing power plants and states can meet these in a bunch of different ways. A state-specific carbon tax could be one of the approved methods for complying with EPA's rules.

Or states could implement a cap & trade scheme a la California/RGGI/Quebec.

Either will likely be more economically efficient than say hard limits on GHGs per kWh, and in the end, a carbon tax or trading scheme should result in the same outcome. How you get there is a matter of what your priorities are. Do you care more about the price of the externality? Then you set a dollar amount (tax). Do you care more about the amount of emissions? Then you set a cap and let people figure out the best way to meet it.

I probably wouldn't hold my breath for a carbon tax, but it is at least a possibility. Of course, a nationwide carbon tax would just be simpler to implement than separate state programs, but alas.