Will putting a price on carbon increase the use of renewables? — The cheapest way to reduce carbon dioxide emissions is probably to put a price on them. One way to do that is a direct tax. Another is a cap-and-trade system, where the government sets an overall cap on emissions, but individual businesses trade emission allowances. But surprisingly, a carbon penalty may do little to increase reliance on renewable energy or reduce petroleum consumption.
Putting a price on carbon would certainly reduce the use of conventional coal-fired power plants. Coal emits more carbon dioxide than other fossil fuels, and its price would more than double. But natural gas would see only a modest change in price: in the short term, it would probably replace coal as the chief source of power. Oil prices wouldn't change much, either.
But unless the costs of wind and solar power come down or nuclear energy proves politically viable, the cheapest way to reduce emissions in the long term would be to capture carbon dioxide from coal plants and sequester it underground, according to a study by MIT's Joint Program on the Science and Policy of Global Change. If the goal is to increase the use of renewable energy, says Sergey Paltsev, principal research scientist at the MIT joint program, governments may have to mandate its use.
More... in the January/February 2009 issue of Technology Review