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 (see "Q&A"). 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.