The Frontal Cortex

Regulation vs. Trading Schemes vs. Carbon Tax

Posted by Jonah Lehrer on May 29, 2007
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Here’s a great L.A. Times editorial on the various policy options that we can use to combat climate change. The editorial comes out firmly against regulation (simply ordering polluters to clean up), and mounts a reasoned criticism of cap-and-trade schemes (the EU trading scheme has been a bust). So what should we do instead? The Times’ recommendation is simple: impose a carbon tax. It’s the simplest, easiest and most effective way to reduce carbon emissions.

A well-designed, well-monitored carbon-trading scheme could deeply reduce greenhouse gases with less economic damage than pure regulation. But it’s not the best way, and it is so complex that it would probably take many years to iron out all the wrinkles. Voters might well embrace carbon taxes if political leaders were more honest about the comparative costs.

The world is under a deadline. Some scientists believe that once atmospheric carbon dioxide levels have doubled from the pre-industrial level, which may happen by mid-century if no action is taken, the damage may be irreversible.

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Comments

  1. #1 Dunc
    May 29, 2007

    The EU trading scheme certainly is a bust, but I’m not sure that it qualifies as a cap-and-trade scheme – they didn’t really bother with the “cap” part, as far as I know.

    I agree that a tax is probably the best way forward, but lets face it, it’s politically untenable. But then again, and serious action on the matter is politically untenable. However, I’m also concerned about the potential regressive impacts of such a tax. The people who most need to reduce their emissions are the people who can best afford to pay the tax, while the people who can least afford to pay the tax are the least able to reduce their emissions.

  2. #2 Dan
    May 29, 2007

    A revenue neutral carbon tax, with the proceeds used to offset payroll taxes (progressive tax-shifting) or returned to all Americans as rebates is a politically viable approach which will maximize reductions of carbon dioxide and maximize societal welfare. The rebates or reduction of payroll taxes, combined with measures to help those who can least afford the tax, will reduce the regressive impacts of a carbon tax. See the Carbon Tax Center’s issue paper on progressive tax shifting.

  3. #3 Epistaxis
    May 31, 2007

    The Republican governor of my state promised during his campaign that he wouldn’t raise taxes. So to pay for road work, he raised a “user fee” on gasoline. I think that’s a very appropriate framing to use here, since it emphasizes that those who can find ways to reduce their usage pay a smaller fee.