Carbon tax v. cap and trade — the hottest arguments since McCartney v. Lennon
The argument over the best climate change mitigation policy is gathering steam. Busting out all over. Topping the charts. All the kids are dancing to it.
Before getting to the latest, though, it’s worth making a simple point: either cap-and-trade or a carbon tax could reduce GHG emissions if properly designed and implemented; either could be ineffectual if poorly designed and implemented. So:
- Either one is better than nothing.
- Nobody’s allowed to check out once once the policy is chosen; the need for engagement will be greatest as the policy is being hashed out.
That said, here’s a few more entries in The Great Carbon Abatement Debate of ’07:
Michael Northrop and David Sassoon have a piece in Environmental Finance making the argument that while cap-and-trade is great, it’s not enough:
Historically, it has taken an average of 10-12 years for the federal government to implement a rule of such scope and magnitude. Even if the strongest cap-and-trade measure becomes law in 2009-10, unless its implementation is pursued with unusual urgency, we could be looking at 2020 before deep reductions are fully implemented. The longer we delay embarking upon the downward trajectory of emissions, the harder and more flawlessly a cap-and-trade scheme will have to work later on.
While the timing presents a challenge, it remains unequivocally necessary for the US to enact the toughest cap-and-trade measure possible, as soon as possible. Yet because it could take a decade or more for cap and trade to start having a profound impact on emissions, it would also be wise simultaneously to adopt a portfolio of policies that will have more immediate impact.
They argue that for these policies — reforms in the building and transportation sectors, green job training programs, appliance efficiency standards, etc. — we should look to the states, where many of them are being successfully implemented. (Hat tip to Patrick Kennedy at Blue Climate.)
Meanwhile, our old friends at the American Enterprise Institute have a more straightforward argument in a new report: carbon trading drools, carbon taxing rulez. (Yes, a conservative think tank is arguing — quite eloquently and effectively — for a new tax. Wonders never cease.) Charles Komanoff has some excerpts over at the Carbon Tax Center. The report begins by cataloguing the many problems faced by trading schemes, and the unlikelihood of those problems being adequately addressed. Then, under the section “advantages of a carbon tax,” there are the following headings:
- Effectiveness and Efficiency
- Incentive Creation
- Less Corruption
- Elimination of Superfluous Regulations
- Adjustability and Certainty
- Preexisting Collection Mechanisms
- Keeping Revenue In-Country
- Mitigation of General Economic Damages
A program of carbon-centered tax reform … lacks most of the negative attributes of cap-and-trade, and could convey significant benefits unrelated to GHG reductions or avoidance of potential climate harms, making this a no-regrets policy. A tax swap would create economy-wide incentives for energy efficiency and lower-carbon energy, and by raising the price of energy would also reduce energy use. At the same time, revenues generated would allow the mitigation of the economic impact of higher energy prices, both on the general economy and on the lower-income earners who might be disproportionately affected by such a change. Carbon taxes would be more difficult to avoid, and existing institutions quite adept at tax collection could step up immediately. Revenues would remain in-country, removing international incentives for cheating or insincere participation in carbon-reduction programs. Most of these effects would remain beneficial even if science should determine that reducing GHG emissions has only a negligible effect on mitigating global warming.
So there’s your policy wonkery for the day. Meanwhile, back in the real world, decisions are based not on theory or empirical learning but on power politics and money, and the fossil interests have more money than the good guys, so we’re all screwed. Happy Thursday!