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One sector where carbon taxes will work well is electricity generation, which accounts for 40% of U.S. emissions. The carbon tax works because electricity producers can choose among a wide variety of commercial energy sources. A modest tax of $25 per ton of carbon dioxide would increase the retail price of electricity made from coal by 17%. Given the many choices, this would motivate electricity producers to seek out lower-carbon alternatives. The result would be innovation, change and decarbonization.

By Daniel Sperling, director of the Institute of Transportation Studies at UC Davis and co-leader of the University of California study of the proposed low-carbon fuel standard.