The likely centerpiece of U.S. legislation to address climate change will be a cap-and-trade program that creates a market for greenhouse gases (GHGs). Whether the onset of a cap-and-trade system and additional complementary policies would provide a benefit or a cost to our economy has been the subject of much modeling and debate. This paper argues that while climate policy does not come without cost, modeling of the Lieberman-Warner Climate Security Act demonstrates that these costs are not substantial and can be mitigated by appropriate policy design. Finally, while a well-designed carbon market will be a large factor in lowering costs and driving innovation, complementary policies will be necessary to induce the technological change required to transition the United States to a low-carbon economy.
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