It’s all about raising the price of carbon
Robert Reich — Secretary of Labor under Clinton, economic policy professor/pundit — has a somewhat confused column up advocating for a "carbon auction." In particular, it’s not clear whether he’s talking about politics or policy, which is a confusion that generally plagues this discussion.
He rejects a carbon tax because it will be politically unpopular. The holy-and-sanctified Middle Class won’t put up with it.
He rejects a cap-and-trade system because it would give the most credits to the biggest polluters, a la the initial attempt in Europe.
The Goldilocksian just-right proposal? A "carbon auction," which is … a cap-and-trade system wherein the permits are auctioned. Which, um, would be functionally equivalent to a carbon tax, though less transparent.
Reich thinks the carbon auction idea is great because "most ingeniously, the money raised in the auction would be shared equally by all citizens in the form of yearly dividend checks." But of course, you could do the exact same thing with a carbon tax.
It’s easy to get caught up in the arcana of these various proposals and lose sight of the basic goal: we need to raise the price of carbon. Ultimately, that price increase is going to be paid by consumers. In the short term, the pain of that price increase can be offset with some sort of rebate system, or payroll tax cut. In the long term, the pain will be offset by the introduction of low-carbon alternatives to the market.
All carbon abatement policies grope in that same direction. So the questions before us are:
- What’s the most effective policy mechanism to get there?
- How can the most vulnerable consumers be protected from the short-term pain?
- What policy proposals are politically realistic?
I happen to like the term "carbon auction" — it’s intuitively easy to understand and it doesn’t activate the anti-tax bias. So politically, it seems like a nice choice. But let’s not imagine that it’s unique in its policy effects. It’s just another species of the raise-carbon-prices genus.