Blunt taxes leave major unconventional oil emissions untaxed, treat dirtier oils more favorably than cleaner ones, provide no incentive for technological innovation, and offer no incentive for refiners to consider climate in determining product mix.Traditional tax designs are blunt instruments that treat all oils alike and tax only consumption of end products.A new smart tax design offers a way to do so. National policy making has not begun to catch up. The long-standing expectation of a gradual, shortage-driven shift to clean fuels has been replaced by the need for a swift transformation in the face of abundant supply. Moreover, the United States faces a hydrocarbon landscape transformed by new, unconventional oils. Each characteristic makes the design of an effective and fair tax particularly difficult. And it is heavily capitalized and the most traded global commodity. It is the most diverse of all fuels-chemically, geologically, and geographically. It is largely used for a single purpose-transportation-for which it has few substitutes. Oil is the most demanding fossil fuel in this regard. To transform energy use and supply across the economy, greenhouse gas (GHG) emissions will have to be priced and the power of the market brought to bear. Regulation and government funding of R&D are necessary but not sufficient to slow climate change.
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