Many government workers wear hats or caps at some time during the day, but the “cap” here refers to placing an upper limit on emission of some pollutant, and either giving or selling permits to emit only that much of the pollutant. Those who receive or buy the permits can then trade them with others, so that eventually the economy will find the cheapest ways to reduce emissions.
Suppose for a moment that the government took all wages; no one would work for wages in such a country. As taxes make working less valuable to people, they choose to do other things that are more valuable to them instead.
Governments require funds to operate, and any tax or fee will make the thing being taxed less valuable, and thus reduce its use. Hence, taxes on things we don’t like (such as cancer-causing tobacco or climate-changing carbon) are often better for the economy than are taxes on things we do like (such as wages from working). Even ignoring the benefits of reducing climate change, a carbon tax could be swapped for a wage tax with little damage, and perhaps even aid, for the economy.
In general, poor people spend a larger fraction of their income on fuels than rich people do (or rich people spend a smaller fraction of their income on fuels than poor people do). This is true even though some rich people have yachts and private jets; they usually also have large investments, perhaps in land or art or other things. So, taxing carbon, which would raise the price of fossil fuels, hurts poor people more than it hurts rich people. Such a tax is called “regressive”.
The economically efficient path raises the tax on carbon slowly, so that impacts on coal miners will grow slowly, and many or most coal miners will be able to retire before they are fired. But, if we ignore the reality of climate change, the rising damages will require faster response in the future, and probably will lead to firing of more coal miners than under the economically efficient path.
The United Nations Framework Convention on Climate Change (UNFCCC) commits the signatories, including almost all the countries in the world, to avoid dangerous anthropogenic influence on the climate system. The Kyoto Protocol attempted to place limits on greenhouse-gas emissions from some industrialized countries.
A recent study by the US National Academy of Sciences/National Research Council found that economic, or econometric, data can be used to keep track of fossil-fuel emissions fairly accurately. Geophysical data, including satellite and surface measurements of concentration and isotopic composition of CO2, also can be used. Together, these data sets will allow verification of treaties on fossil-fuel use.
Getting enough energy to keep lots of people happy is very difficult, and sure to have negative externalities. But, with oil spills, acid mine drainage, airborne soot particles, acid rain and climate change, the available literature indicates that the negative externalities of fossil fuels are generally much larger than for renewables.
Predictability is important for businesses and governments, and oil prices have been very unpredictable, with large swings at various times having contributed to recessions, wars, and other problems. Renewables and nuclear help smooth this out, and so are worth a little extra price for most businesses and consumers.
If you ignore the benefits of avoiding climate change, moving to renewables is expected to have a relatively small influence on total employment but probably to increase employment slightly. Including the benefits of avoiding climate change, the switch is likely to increase employment.
The IEA found that direct subsidies for fossil fuels were almost 6 times larger than for renewables. The IMF found that governments make payments to lower fossil-fuel prices, set consumption taxes lower than for other products, and allow unpriced externalities for fossil fuels. A government may do one of these, or two, or all three. The total cost of these subsidies for fossil fuels is about 2.5% of the world economy, or 8% of government revenues. This makes providing subsidies to fossil fuels among the more expensive things that governments do.
As of 2010, a survey of the main governments funding research in the world found about 4% of the research devoted to energy, much less than for health or some other topics. Despite the huge importance of energy, it has not been central for funding.
Much money went into fusion research, which is not close to commercialization. Much money also went into nuclear fission; waste isolation has been an important part of that funding portfolio. Fossil fuels also received much research funding, more than for all the renewables taken together.
Governments have been involved with energy for a very long time, passing laws about firewood long before oil wells were being drilled, for example. Many decisions over the 20th century and the early 21st century affected energy, and some of those decisions did serve to promote fossil fuels ahead of renewables, such as the rural electrification that reduced demand for wind power between the World Wars in the USA.
Many options are available, including putting a price on carbon, or enacting some of the many possible rules and regulations.