A strange-bedfellows political coalition, everyone from the CEO of Exxon to climate scientist James Hansen, supports a carbon tax as an alternative to cap-and-trade. Tax proponents allege that cap-and-trade is too complicated; too friendly to financial industry tricks and manipulations; too open to loopholes, cheating, and special pleading; too weak to work.
This is all true. Or rather, could be true, if special interests are given too influential a voice in the process; if there is no organized grassroots movement applying pressure; if the legislators developing the policy allow it to happen.
The thing is, the same flaws could just as easily weaken a carbon tax. Just because it looks elegant sketched on an economist’s whiteboard doesn’t mean a tax can’t be corrupted in the real-world political process. (Have a quick look at the U.S. tax code.)
To boot, taxes of any kind are notoriously unpopular among the U.S. electorate.
It’s an article of faith among supporters that returning the revenue to taxpayers via rebates could bring public support around behind a tax, despite the fact that just such a refunded tax was roundly rejected in Canada last year. Despite the fact that a comprehensive new survey out of Yale (PDF) asked a representative sample of over 2,000 people what means they favored to fight climate change and a fully refunded gasoline tax came in dead last. Despite the lack of any real empirical evidence that taxes can be rendered popular with promises of rebates.
Pricing carbon will be a fraught political battle, in danger of being corrupted or dying in Congress. That’s true whether it’s cap-and-trade or a carbon tax on the table.