The United States faces two key energy challenges—improving national security by reducing dependence on foreign oil and mitigating the impacts of climate change by reducing carbon emissions. Closely linked is another challenge—as well as an opportunity—boosting international economic competitiveness by discovering and widely commercializing clean energy technologies. Until now, the predominant approach to these challenges was to based solely on raising the cost of carbon, either with a tax or through cap and trade. But this approach has come under strong resistance in part because raising the price of energy hurts U.S. industrial competitiveness. ITIF proposes a unique, alternative approach to meet all three goals simultaneously.

The way to do it is through a revenue-neutral innovation carbon price. ITIF proposes a fifteen-year economy-wide carbon tax on upstream, combustible, non-feedstock fuel sources of $15 per ton. Roughly 83 percent of tax revenues would be recycled back into the economy as growth and innovation inducing business tax incentives. Businesses that in