Many policy instruments are available for reducing greenhouse gas emissions. They include emissions taxes, tradable emissions permits (cap and trade), subsidies for emissions reductions, command and control regulations, labeling and information requirements, and subsidies for research and development of low-carbon technologies. In addition, nations will likely adapt to climate change by investing in measures that reduce the harmful effects of climate change. Adaptation measures include building seawalls that limit flooding caused by rising sea levels, moving from threatened areas, developing new plant varieties that survive extreme weather conditions, water conservation, improving responses to diseases that will spread as the climate warms, improving weather forecasting technology, and similar measures. There are as many combinations of mitigation strategies and adaption responses as there are analysts, with cap-and-trade systems and taxes dominating the current debate.1
Most of the work on the choice of emissions policies focuses on their relative efficiency—which policies can achieve reductions at the lowest possible cost. Because of the size of the problem presented by climate change, even modest improvements in efficiency can lead to large savings. Market-based mechanisms, such as taxes or cap-andtrade systems, hold the promise of reducing emissions at a much lower cost than other mechanisms. There are also, however, a number of underlying ethical issues that are important to the debate.
In particular, cap-and-trade systems might have different distributive effects than will taxes, particularly in the international setting.2 The reason is that cap-and-trade systems might have the flexibility to