An LATimes editorial on climate change economics has four sections:
- Scary problem
- Carbon tax vs cap-and-trade
- The European market got all screwed up (and then we're back to #2)
- We'll never have a carbon tax
In section #1, the opinion person tries to get our attention by saying that CA's beaches will be gone soon. This doesn't help.
In section #2, after arguing rightly that The Terminator's pursuit of cap-and-trade is better than technological and other standards, the opinion person declares that a carbon tax is better than both:
And yet for all its benefits, cap-and-trade still isn't the most effective or efficient approach. That distinction goes to Method No. 3: a carbon tax. While cap-and-trade creates opportunities for cheating, leads to unpredictable fluctuations in energy prices and does nothing to offset high power costs for consumers, carbon taxes can be structured to sidestep all those problems while providing a more reliable market incentive to produce clean-energy technology.
There are three points in this paragraph and each of them can be disputed.
First, what government policy does not create opportunities for cheating? Has anyone other than me ever heard of someone NOT paying their taxes?
Second, a safety valve can help avoid crazy fluctuations in energy prices.
Third, [begin rant here] the only way that a tax on carbon would not be passed on to consumers in the form of higher prices is if demand is perfectly elastic (i.e., flat). This means that consumers have perfect substitutes elsewhere and as soon as firms try to raise price they flee. Firms can't raise price as a result. Does this sound like energy markets to you? Can I repeat? Any government policy that addresses climate change will result in higher prices and/or taxes for consumers. There is a cost. There is no free lunch. I've read this myth several times recently. Who is the source? Anger. Rage. I want to brain him!
In section #3, the opinion person(s) states that the European cap-and-trade experiment hasn't worked and might never work because of a weak overlord (no EU-EPA) and lobbyists. This experience is then incorrectly transferred to the United States and a huge allocation option with cap-and-trade is ignored: auctioning of permits. For the most excellent analysis of cap-and-trade allocation schemes see the CBO's.
In section #4, the opinion person(s) correctly state that a carbon tax is difficult politically and, again, incorrectly states that it is friendlier to consumers.
Let me be clear, I'm a fan of economic incentives. I would be delighted with implementation of a carbon tax or cap-and-trade to deal with climate change. Yet, I don't see either as wildly superior to the other. Whenever someone advocates one as wildly superior to the other I grow suspicious (i.e., where's my wallet). You should too.
Hat tip: Silent Bob.
