Supporters say making industries that burn fossil fuels pay to spit out carbon dioxide would encourage a shift to cleaner, alternative-energy sources by making it more expensive to burn coal, gasoline or natural gas. Some favor a cap-and-trade system, which sets a limit (the cap) on emissions and creates a market where companies can buy and sell permits to discharge carbon dioxide (the trade). Others favor a simpler tack: Tax companies on the carbon they emit.
Critics, meanwhile, say any price on carbon is misguided. A better, less costly approach, they say, would be for governments to invest directly in clean-energy technologies.
The Wall Street Journal asked three experts—David Weisbach, a professor of law at the University of Chicago; Eileen Claussen, president of the Center for Climate and Energy Solutions; and Ted Nordhaus, chairman of the think tank Breakthrough Institute—to debate the issue.
Here are edited excerpts of their discussion ...
Here are the teaching aides from James Dearden, Lehigh University:
SUMMARY: That question divides even those who agree the government needs to pursue clean-energy policies. Three experts debate the issue. The article addresses the following issues: whether the reducing emissions improve economic efficiency; the effect of carbon taxes (or a cap and trade system) on the development of cleaner technologies and energy sources; and the compensation for reduction of carbon emissions.
CLASSROOM APPLICATION: The article fits well in an analysis of externalities, carbon emissions, and economic policy. Also, cap and trade fits well in an analysis of the economic efficiency of markets.
1. (Advanced) Do we need to price carbon? Include a discussion of negative externalities.
2. (Advanced) The article states: "Some favor a cap-and-trade system, which sets a limit (the cap) on emissions and creates a market where companies can buy and sell permits to discharge carbon dioxide (the trade). Others favor a simpler tack: Tax companies on the carbon they emit." What is cap-and-trade? Suppose a given carbon tax results in the same amount of carbon emissions as that of a given cap-and-trade mechanism. Which system, tax or cap-and-trade, is better? What criteria should be used to judge "better"?
3. (Introductory) What is the effect of pricing carbon on the market (i.e., without government subsidies or regulation) development of wind, solar, nuclear, and carbon capture technologies?
4. (Introductory) In terms of "mitigating the pain," discuss the tax and cap-and-trade mechanisms.