Carbon tax vs cap-and-trade: which one is more likely to disgust the American public?

Fill in the blank:

Our fear is that with so many billions at stake, any carbon _____ program will necessarily be beset by crippling delays, inside-dealing and favoritism run wild. The result will be to disgust and disillusion the American public so that it turns against putting a price on carbon emissions altogether.

Answers:

1. tax
2. cap-and-trade
3. either tax or cap-and-trade
4. neither tax nor cap-and-trade

My answer is 3. Just like any government policy, both a carbon tax and cap-and-trade can be gamed through the political process. It is goofy to try to argue that one would be gamed more than the other.

The quote was taken from Carbon Tax Center blog and they have their own answer:

When we two (Charles & Dan) resolved last fall to form the Carbon Tax Center, we looked forward to tangling with anti-tax ideologues on the Right and advocates of state intervention on the Left, not to mention Flat-Earthers who deny climate change altogether. We never anticipated that we would be debating with our friends and allies in the environmental community, but that became inevitable when, just before we launched announced the CTC, four large environmental organizations teamed up with major corporations to back carbon cap-and-trade regimes through the U.S. Climate Action Partnership.

CTC has no quarrel with the notion of tradeable emission allowances. In fact we credit the sulfur dioxide permit program enacted as part of the 1990 Clean Air Act Amendments with helping drive down acid rain emissions from power generation. But the scale and complexity of the carbon problem positively dwarf those of sulfur. (Block That Metaphor Department? We have likened the disparity to the difference between a French mud hut and the Palace of Versailles, in an article in Gristmill; and to the difference between a Mozart sonata and a Wagnerian opera, in an invited post on the on-line Portfolio magazine.) Our fear is that with so many billions at stake, any carbon cap-and-trade program will necessarily be beset by crippling delays, inside-dealing and favoritism run wild. The result will be to disgust and disillusion the American public so that it turns against putting a price on carbon emissions altogether.

On this score, CTC finds itself in fine company. In just the past two months, outspoken criticisms of carbon cap-and-trade proposals have been published in Reason magazine, the Financial Times (U.K.), the Los Angeles Times, and the New York Times Science Section "TierneyLab" blog, to name just a handful. Of critical importance, each piece has been effusive in its support of a carbon tax. As we were posting this newsletter, the right-of-center American Enterprise Institute weighed in with an extraordinarily cogent report comparing a carbon tax with cap-and-trade that unambiguously backs carbon taxing as "the superior policy option."

These testimonials are collected on our Supporters and Tax vs. Cap pages. The L.A. Times editorial is especially noteworthy. The sole editorial in the May 28 (Sunday) edition, the 1,600-word Time To Tax Carbon made as resounding a case for a carbon tax — both in preference to cap-and-trade and for its capacity to stimulate carbon-reducing investment and innovation — as we've seen. Here's one passage:

A carbon tax simply imposes a tax for polluting based on the amount emitted, thus encouraging polluters to clean up and entrepreneurs to come up with alternatives. The tax is constant and predictable. It doesn't require the creation of a new energy trading market, and it can be collected by existing state and federal agencies. It's straightforward and much harder to manipulate by special interests than the politicized process of allocating carbon credits.

Reading manifestos like this, it's hard to resist the feeling that a shift is underway from cap-and-trade to a carbon tax. Indeed, a few days after the L.A. Times ran its editorial, an editor at a popular environmental blog wrote to say:

It's been a slow process of education for me… What brought me around to my pro-tax position is, ironically, my libertarian streak. The essential libertarian insight is that complexity and bureaucracy are invitations to corruption. Big business will try their best to game the system. We know that. Politicians will be subject to lobbying and financial support. We know that. So the best route is the one that minimizes complexity and bureaucracy.

Since the biggest rap against a carbon tax has been its lack of popular support, "conversions" to the carbon tax camp such as that above could have a snowball effect, as each new adherent makes success more plausible. Part of our job at the Carbon Tax Center is to help the world see how rapidly the snowball is growing. We hope to have more to report in future newsletters.

Comments

[DCBob]

I hadn't noticed that AEI come out for a carbon tax. I'd almost rather they just kept quiet - this will reinforce the enviros' meme that carbon taxes are a conservative attempt to subvert cap-and-trade, which they think is far superior. Oy.

[odograph]

It (AEI endorsement) might reinforce my belief that the carbon tax is more easily "gamed."

[joshua corning]

Just like any government policy, both a carbon tax and cap-and-trade can be gamed through the political process. It is goofy to try to argue that one would be gamed more than the other.

Umm...isn't that the point of them?

I game a gas tax by keeping my tires properly inflated so I will pay less tax....

[odograph]

I think by "gaming" we mean seeming to comply, but not really. If you are inflating your tires and burning less fuel, then you are avoiding the tax but in a good way.

It is all a chain of promises.

1. We promise that temperature T is safe.
2. We promise that CO2 level L will make temperature T.
3. We promise that a CO2 emission rate of R will make CO2 level L as an end-point.

That's in common in all plans. The tax just adds one more, rather than targeting emissons:

4. We promise that a tax of X will make an emission rate of R, once the market adjusts.

Is it silly to worry about that last promise? John thinks so, maybe because he is used to (and even likes) promises of that sort. They are up an economist's alley so to speak. He could even write papers and argue about levels of X and R ...

Me, I'd rather give that a pass.

[gordon]

In Australia, where I live, the Fed. and State Govts. all seem to be supporters of cap-and-trade, insofar as they support any action at all on emissions reduction. If any of you are interested in developments Down Under, the Australian Fed. Govt's. latest attempt to look respectable on emissions is downloadable from here, and another plan developed by the State Govts. is downloadable from here.

Being more recent, the Fed. Govt. plan is currently the subject of debate in Oz. To me, it reflects the dismal politics of climate change very well. Agriculture is frankly excluded (farmers are a powerful lobby in Australia). Any industry which could be described as a "trade-exposed, energy-intensive" industry is effectively excluded also. That basically means that cap-and-trade becomes a device to raise households' energy costs. At least the advocates of carbon taxes generally admit that some other tax/es should be reduced if a carbon tax is introduced. On the basis of these Australian proposals, a cap-and-trade scheme is beginning to look like a way of introducing what amounts to a tax on housholds without any offset at all. Neat trick!

[David law]

As far now; I don’t see any such plan to encourage consumer to generate the power more then what they use. The Net Metering system is only for what they actually use,

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