Since markets do not take account of long-term social priorities, governments need to anticipate changes in energy availability, environmental constraints, and the lead-time needed to develop technology and have infrastructure in place. One approach advocated by many economists is to introduce taxes on fossil fuels to provide incentives for consumers to alter behavior and reduce consumption of fossil fuels, and to provide producers with incentives to develop alternative energy technologies and commodities that rely less on fossil fuels. The potential success of this kind of "induced innovation" has been documented in economic studies of other sectors of the economy. Economists have also suggested that higher energy prices could be achieved with import taxes on fossil fuels, which would also have the effect, through market adjustments, of shifting a portion of the tax onto foreign oil exporters rather than US consumers (Import taxation of fossil fuels will inevitably cause suppliers to reduce costs to the U.S. to avoid significant reductions in demand. Thus, any tax will be partially passed on to international suppliers, yet all tax revenues collected remain in the U.S.)

In all these examples, the tax revenues could be used to finance reductions in pre-existing income or payroll taxes, an idea that is referred to as "revenue recycling." Revenue recycling also has the advantage of creating a "double dividend" or second benefit because it both reduces an unwanted negative side effect of fossil fuel use (environmental externalities and dependence of foreign oil), and it also reduces the distortionary effects of pre-existing taxes by making it possible to lower those tax rates. Some economists also advocate subsidies of renewable energy and technology development that would provide producers and consumers with additional incentives to shift toward renewable energy or to low-energy goods and services. Regulation can also be effective, as in the example of U.S. CAFE (mileage) requirements on automobile manufacturers.