Something about NYC mayor Michael Bloomberg’s arguments for a carbon tax struck me as a little too glib, too pat. Barack Obama’s energy advisor Madhuri Kommareddi does as good a job as anyone of explaining why, arguing that a cap-and-auction system beats a carbon tax on the merits:
Why this system instead of carbon tax?
What’s important to note is that we’re implementing a 100% auction of cap-and-trade credits. This has the same effect as carbon tax — because it raises the costs of polluting and everyone has to pay. The benefit of this is that it’s more flexible and market driven.
The government is susceptible to lobbying from oil companies and coal companies and if the government is setting a price through a carbon tax, they’ll be subject to these pressures.
We’ll also need perfect information to determine the right price. How much will ensure companies don’t just continue polluting? How much is enough to not hurt consumers?
The government isn’t the perfect analyst of what to do here. This is an area in which market forces can create better results.
Kommareddi doesn’t get into another ding on trading systems, which is this notion that they are inherently subject to gaming. But it’s not like the tax code is the last refuge of integrity in the federal government. Whereas a cap-and-trade could at least in theory be made automatic, with the cap ratcheting down each year, a carbon tax would have to be constantly tweaked and re-negotiated, each time a new opportunity for malign industry influence.
The fact is, there’s no policy silver bullet that can avoid the possibility of influence peddling, rent-seeking, and corruption. They could plague a tax just as easily as a trading system. The answer is not to wish for a future pony world where industries don’t influence government. The answer is to create a countervailing industry. You need pressure coming from the other side, from the renewable and efficiency side. Without it, any carbon reduction program in which governments are involved is going to be vulnerable.
