Tax or cap-and-trade? A welcome debate

The Washington Post has decided that a carbon tax would be better than capping carbon emissions and trading the rights to emit. It joins a growing list of tax proponents, including James Hansen, Al Gore, Ralph Nader (writing in the Wall St. Journal), The American Prospect, and even ExxonMobil. An eclectic lot. Not everyone's on board, though. A notable holdout is

Barack Obama, who favors cap-and-trade. Or at least he used to last time he said anything about it.

A lot of the recent converts to a straight tax point to the wacky workings of the European Union's cap and trade system. (Look what Russia's doing, for example.) My instincts tell me not to write off cap and trade just because the Europeans have screwed up the first serious effort to get such a market going. but I haven't managed to study the issues closely enough to know whether it's likely that any similar mechanism can be made to work properly.

Regardless of which one holds more promise for reducing greenhouse gas emissions, it seems to me that the fact that the debate now concerns which financial instruments we should use represents major progress. No longer is it whether we should try to twist the market to serve a climatological end, it's how we should go about the task.

And that is progress.

Of course, we don't have much time choose one over the other. Emissions have to be on the decline by 2015, or 2020 at the absolute latest. So let's hope Carol Browner, the new energy and climate overlord, can lead the effort to sort out the economics pronto.

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Europe is certainly screwing cap and trade up (my tax pounds in action), but the toxic mixture of fear, lobbying and short-term national interest is sadly universal.

I suspect that the usual lobbies in the US will say exactly the same thing is the Germans, the Greeks, the Italians, etc. - we have to emit carbon in vast quantities (or else we will all die), and we'd like the permits to be free - or else. We will then sell the permits at considerable profit, or do nothing, because the price of carbon is so low.

On the other hand, since a meaningful carbon tax has about as much chance of making it onto the statue books as a really big gas tax, cap and trade is better than nothing, if you can make it work. Hopefully the EU Parliament can stop the EU's permit giveaway, and give cap and trade a fighting chance.

People have a hard time getting past the word "tax" in carbon tax.

One of the political parties in Canada made a carbon tax part of their platform in our October election. Unfortunately they didn't sell it (or themselves) very well, and the Conservative government painted it as "a permanent tax on everything". Thus it died and the idea will be politically toxic in Canada for a long, long time.

The tragic part is that the carbon tax was paired with a reduction in income taxes, to offset the cost. Many, including me, would have ended up saving money. But our Prime Minister (Stephen Harper) is truly gifted in his ability to serve up fear and misinformation.

Ah yes, the progressive's cure for every ill; a tax.

Why I'm certain a new tax (on virtually everything) will be just the tonic for our sliding economy.

You really do want the Democratic Party to be banished for another generation don't you?

Lance, the usual plan for a carbon tax is revenue neutral. Every cent of the tax gets credited back to taxpayers. Perhaps as a credit to the payroll or income tax. This means that only people who use more carbon-based goods and services than average would see a tax hike. People who use less (working-class people who live in dense urban areas and don't drive cars, say) would end up saving money. It would encourage efficiency in the economy, which would definitely be a stimulus in the long run.

Harlan,

So its "revenue neutral" huh? Leaving aside the costs of implimenting and operating a whole new tax beaurocracy for the moment, there is the issue of the consequences of coercing people from economic activities that they choose for actual cost benefit reasons to artificially choosing winners and losers based on governmental preferences. It is wishful thinking at best and will effectively hobble the actual energy infrastructure that underpins our modern economy.

This is like deciding that we will all grow taller by taxing short people and giving the money to people above six feet tall.

Carbon based fuels are the lifeblood of our modern world and taking money away from people that use these fuels and giving it to people that are not (such as urban dwellers and the poor) is economic suicide.

Also you are misinformed if you believe that public transportation is more energy efficient or less carbon intensive than automobiles.

I think that a tax would be the most effective, but I think that a cap-and-trade system has a much better chance of actually passing legislation. It won't be as effective as a tax, but it's better than nothing. However, a carbon tax would be most useful if the money from that tax were used to make it easier to pollute less. For example, funding public transportation, funding scientists researching cleaner fuels, tax rebates for making your home more energy efficient, etc.

Lance - its not just the 'progressives' who want a 'revenue neutral' carbon tax. Even the UK Tories were pushing for green taxes (they are now dropping them of course... Taxing people to stop them doing bad things isn't lefty, its basic economics.

As for the link about how cars are more efficient than public transport - you took a Cato Institute report at face value? Why? They don't.

MikeB,

"Taxing people to stop them doing bad things isn't lefty, its basic economics."

There is nothing "bad" about 500 ppm CO2. Taxing people for using the energy that powers 90% of everything we do is idiotic.

I have no alternative to driving my car and using coal powered electricity to run my appliances and natural gas to heat my house.

My car is fairly new and I will drive it until it disintegrates beneath me as I always have. There is no public transportation from anywhere near my home to anywhere near my workplace.

I am connected to the coal produced electricity and natural gas by my public utility companies. Taxing the hell out of my energy use will not do anything but make me poorer and less able to spend money on anything else.

This will further deepen our economic crisis (not to mention worsen my personal standard of living) and won't help to "stimulate" alternative energy production or use.

Driving my car and heating my house is not like smoking. Although I know you carbon-phobes see anything that produces CO2 as "sinful". An energy tax would be a virtual tax on every product and service. I can't think of a more disasterous idea as we slip further into a world wide economic recession.

This mass delusion is no longer just an amusing internet football now that real policies with real consequences are being proposed and instituted.

The recent fizzling of the Posnan Conference is evidence that people aren't about to commit economic suicide to "save the planet" from a phantom menace.

Lance - firstly, 500 ppm CO2 is not just 'bad', its very very bad, and I don't think anyone wants to see it happen, even you.

No one is asking you (apart from the usual lobbyists) to stop driving your car and take a non-existent bus. But for a large number of commuters, public transport is more efficient, safer and possibly cheaper. The first comment on the blog you linked to about the Cato report questioned the reports conclusions, on the grounds that 'This seems to be a matter of utilization than bare efficiency. A fully loaded bus getting 3 MPG will be the average Prius (single-occupant) handily in passenger seat-miles.' It was a lousy report, which took special pleading to new heights. Just ignore it.

And no one is expecting that you should be taxed so much that you simply freeze to death in your house. But a carbon tax would encourage your suppliers to generate electricity more efficiently and cleanly, and you to use it more wisely. If you want to change peoples behaviour, then an increase in price tends to work very well - just ask the people of California, who reduced their electricity consumption considerably after prices rocketed some years back.

Taxing people to do the right thing can change what we do, and make us do better. How many people have stopped smoking since you can't light up in public places and a packet of ciggies cost 3 times what they used to? Taxation and legislation works, if you do it right.

MikeB,

"...firstly, 500 ppm CO2 is not just 'bad', its very very bad, and I don't think anyone wants to see it happen, even you."

Well that is the question isn't it? The earth's atmosphere has undergone past eras with much higher CO2 concetrations and lower temperatures and periods of lower CO2 concentrations and higher temperatures see here.

This would suggest that the two are not coupled and in more recent geological history the Vostok ice cores show that outgassing of the oceans due to increased temperature is likely responsible for the fact that CO2 lags rather than leads temperature.(P.S. I've read RealClimate parsing of this as not "disproving" that after rising temps outgas CO2 it might be drving the temps higher. Ocaam's razor dispatches this contrivance quite nicely.)

I, and many other scientists, are of the opinion that we face no consequence so dire as to tax fossil fuels and that such a tax would be harmful in net effect.

I often hear the "precautionary principle" invoked at this point. This overlooks the obvious fact that taxing our most useful energy supply, fossil fuels, has serious and negative consequences as well.

I suspect that you will not be swayed by the evidence I present and in any event this will be played out in the venues of public discourse and governance.

Since China and India don't seem to want to play along it is quite likely atmospheric CO2 will continue to increase no matter what is done by the governments of the west.

I don't lose much sleep over it.

If Obama is serious about taxing all fossil fuels and stopping the production of new coal fired electrical plants it will only serve to increase the cost of energy and every product produced or shipped by that energy and every service contingent on that energy which is pretty much the entire economy.

Do you really want to toss those dice when there is very little possibility that it will have any real effect on atmospheric CO2 levels, whether or not that has any measurable effect on climate?

I don't.

what he said.

By Friends of Lance (not verified) on 19 Dec 2008 #permalink

shqwauwk. I'm a global warming parrot. shqwauwk. shqwauwk. shqwauwk.

By Shqwauwkie the… (not verified) on 19 Dec 2008 #permalink