I quantify the costs of controlling SO₂, carbon, and NOx emissions from power generation, accounting for interactions between environmental policies and the broader fiscal system. I distinguish a dirty technology (coal) that satisfies baseload demand and a clean technology (gas) that is used at...

Using analytical and numerical general equilibrium models, we show that preexisting factor taxes produce a "tax-interaction effect" that increases the costs of pollution taxes and quotas. Under policies that raise revenue and recycle it through cuts in marginal factor tax rates, this effect is...