"Tax carbon, California — the rest of the nation will thank you"

Michael Wara, Adele Morris and Jerry Taylor:

California’s cap-and-trade program to restrict greenhouse gas emissions has hit a major political roadblock. Extending the current program beyond its 2020 expiration most likely requires new action on the part of the Legislature, and majority support looks dubious. And even a majority might not be enough. Many legal and policy analysts believe the state's cap-and-trade regime is functionally a tax, and that reauthorizing and extending it requires a two-thirds majority vote of legislators or voters. ...

That uncertainty depressed the emissions allowance market that defines the cap-and-trade program. Emissions are capped, and emitters need to purchase enough permits from a state-run auction or on the secondary market to cover their emissions. In the most recent auction of these permits, California sold only 11% of the available supply. The lack of demand to some degree showed that emissions were being successfully capped, but it also called into question the whole scheme and raised much less money for “green” projects than expected. On Aug. 16, the state will hold another allowance auction whose results are unlikely to be much better.

Cap and trade, as even this simplified description demonstrates, is a complex program. If California must pass new legislation with a two-thirds majority to extend its climate efforts anyway, policymakers should consider replacing it with a simple straight-up carbon tax. It would provide even more powerful market signals to encourage emissions reductions, serve broader fiscal purposes and thereby make for a better model for federal legislation.

A tax is simpler than cap and trade because it doesn’t involve allowance auctions, registries to keep track of who can sell and who must buy, market monitoring or carbon offsets. Emitters just pay a predictable (and gradually rising) fee for each ton of carbon dioxide they emit, not unlike the tax on a pack of cigarettes. Even a modest tax is likely to be more environmentally effective than the current approach because it is a direct and predictable incentive to lower emissions and use cleaner technology. Under cap and trade, California’s other clean energy regulations do much of the work to prod emitters to meet the cap; the trading system just picks up the slack. ...

Cap and trade has lowered emissions in California and it’s still a popular policy for many, but in Congress, it's increasingly viewed as complex, subject to manipulation and giveaways, and as an engine for the expansion of government. By contrast, a tax strategy is gaining traction.

Although carbon tax bills introduced by Democrats haven’t yet attracted Republican support, a number of Republicans express off-the-record openness to a deal that taxes carbon and also supplants EPA regulations, reduces other taxes and offsets impacts on low-income citizens, for example via expansions in the earned income tax credit or targeted rebates. But those Republicans also fear the political consequences of stepping forward before the right political moment. California’s leadership could help foster that moment.

via www.latimes.com

Ah, the "right political moment."