The key theme of this report is that welfare costs depend on how policies interact with distortions in the economy created by the broader fiscal system. The main medium-term options that this paper focuses on include carbon taxes and cap-and-trade systems applied economy-wide and to the power sector only, and an emissions rate standard for power generation. The bottom line is that revenues or rents created under economy-wide, market-based carbon policies must be used to increase economic efficiency to ensure that these instruments are more cost-effective than regulatory or sectoral approaches.