The United States relies primarily on an extensive set of rules and regulations to reduce CO₂ emissions. These rules and regulations typically target specific sectors or types of activities and mandate the use of particular technologies and processes or otherwise place restrictions on the choices of consumers and producers. This approach contrasts to the market-based approach of a carbon tax, which would place a uniform price on emitting CO₂ across the entire US economy. A uniform carbon price would leverage the knowledge and behavior of consumers and producers to find where it is least costly to reduce emissions, as compared to regulatory CO₂ controls that may be less flexible and can mandate more costly ways to reduce CO₂ emissions.

This report uses the EY General Equilibrium Model of the US Economy (“EY GE Model”) to compare the economic impact of regulatory CO₂ controls with a revenue-neutral carbon tax that achieves the same reduction in CO₂ emissions. Specifically, the analysis separately models the economic impact of two alternative paths for CO₂ abatement: (1) a regulatory-focused CO₂ abatement approach that is a stylized representation of the regulatory abatement approach in the United States, and (2) an economy-wide, emissions-equivalent carbon tax with a carbon price set such that it achieves the same CO₂ reductions as the regulatory-focused CO₂ abatement approach.