5.17.2009

Carbon Tax vs. Cap and Trade, Round Two


Two addenda to a post earlier this month on carbon tax vs. cap and trade:

* In defense of cap and trade, my co-workers notes that it is possible the scientists have a pretty good sense of what is a tolerable amount of carbon to be emitted each year, above which the atmosphere has trouble absorbing. So setting a ceiling allows you to have more certainty that you won't go over that threshold than if you just implement a tax and hope that the higher cost will get you to that number or lower.

* In defense of a carbon tax, this article reminds us that Europe's system hasn't worked so well because there were too many give-aways on the front end, so the price of credits was driven down and people didn't have enough incentive to change behavior.

On that note, here's a haunting quote from the above-linked article: "The US debate is really US-centered. There is so much focus on buying the 60 (Senate) votes needed, and each senator's vote that is bought comes with something attached, some type of concession for a sector or for trade unions."

In other words, in the spirit of compromise, we will both dilute the bill's environmental impact (cue boos from the Left), ratchet up the cost of energy with no offsetting tax cut (cue boos from the Right), and transfer billions to whichever industry and group is politically connected enough to get themselves written in (cue boos from the Center). Sounds like a winner all around.

Why people don't consider that a straight carbon tax with no give-aways, paired with a payroll tax cut, won't be better in the long-term, both economically and environmentally, is beyond me. Sure, you'll have your winners and your losers, but so what? Think about it this way: those who will win are those who have unfairly borne too much of the current burden, and those who will lose are those who have unfairly borne too little of the current burden. So if you win going forward, that's simply making up for the fact that you were losing before; and if you lose going forward, that's imply making up for the fact that you were winning before. And, ultimately, what we want is for people to change their behavior: if what I have been doing all along is now encouraged, I'll do more of it, and if what I have been doing all along is now discouraged, I'll do less of it.

As this article puts it, cap and trade advocates, knowing they're in for a battle against the status quo, want their proposal to go into the ring untarnished. Here's hoping that a carbon tax plan can give cap and trade at least a little bit of a scuffle first, if not pull the upset. After all, at stake isn't just one bloc of politicians, lobbyists, and special interest groups versus another; rather, it's merely the long-term sustainability of our economy and our planet.
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