'Round the hamster wheel again

Cap-and-trade vs. carbon tax: a bird in hand is worth two on Alpha Centauri 8

hamstersTax! Cap! Tax! Cap! Pant ... I find it really hard to believe, but the perennial “carbon tax vs. cap-and-trade” debate is still going on. It goes on and on and on and it never changes. It’s like everyone’s following a script now.

I’ve been over this territory so many times that I hardly know what to say any more. So here’s what some other people are saying:

Joe Romm started this off by asking James Hansen to drop his quixotic and politically toxic campaign against the Waxman-Markey climate/energy bill. Kevin Drum chimed in, supporting Romm.

Michael O’Hare responded with a heated defense of carbon taxes (or as he calls them, carbon charges), premised mainly on a basic misunderstanding of Romm’s post. (Joe wasn’t defending cap-and-trade as such against the carbon tax alternative—he was defending Waxman-Markey, including all its complementary policies, against the tax alternative.)

Ryan Avent says taxes and caps are not that different in effect and only one has a chance of passing, so carbon taxers should STFU. Andrew Sullivan responds that he thinks the tax will work better, and so no, he won’t STFU. Kevin and Ryan both respond to Sullivan, pointing out that he seems to be suffering from some serious misunderstandings about cap-and-trade systems. (In this he has, to put it mildly, plenty of company).

Meanwhile, Yale 360 has rounded up a group of “experts” to weigh in on the issue, though several of the purported experts seem to understand very little about the policies and/or the politics at hand. The submissions from Jeffrey Sachs and Roger Pielke Jr., in particular, are so poorly argued as to defy explanation. Michael Tobis says that Jeffrey Sachs’ argument for a tax “makes sense” to him, but Kevin points out that Sachs’ argument is somewhat hampered by the fact that virtually every single sentence is head-slappingly false.

Is that it? I think that’s it. For now, anyway. I’m sure the entire roundelay will repeat itself soon enough.

Rather than tread all this ground yet again, here are what I take to be the three key points:

• The policies are, or can be made, roughly equivalent. With a tax you get certainty about prices but uncertainty about emission reductions; with a cap you get the inverse. You can tweak a tax to shift the balance; you can do the same to cap-and-trade. Both can be weakened with loopholes and favors for special interests. Political reality being what it is, either is likely to impose a fairly low price on carbon for the first decade or so. Which means ...

• In the short-term,  complementary policies will spur the most action. The never-ending, chin-stroking carbon pricing debate perpetually overlooks this basic fact. (See: “Cap and Trade is Not Enough: Improving US Climate Policy” [PDF] from Carnegie Mellon.) What’s going to knock us off the status quo path in the next decade is, above all, new targets and standards for energy efficiency. Also: a renewable energy standard, a low-carbon fuel standard, smart-grid standards and funding, government procurement policies, direct government investment, etc. etc. These are the policies that could get things rolling immediately. And guess what?

• The Waxman-Markey bill contains those complementary policies. Also, it exists. Both these characteristics set it apart from the Alternative Universe Carbon Tax Pony Bill. Carbon taxers seem blinded by a misguided obsession with the specific mechanics of carbon pricing. By bashing Waxman-Markey, they are aligning themselves with people who want to block the best opportunity for climate/energy action in a generation. They’re aligning themselves with people who want to block it not in favor of a pony alternative, but in favor of doing nothing, to protect corporate donors. In many cases, they are adopting the exact same rhetoric as conservative obstructionists.

If taxers want to engage productively, they should advocate for tax-like features in the cap-and-trade provision of the Waxman-Markey bill—price floors and/or ceilings, fully auctioned permits, expanded banking and borrowing, etc. Bashing the whole bill in order to argue endlessly and fruitlessly in favor of a hopeless alternative, the advantages of which exist entirely in the whiteboard fantasies of economists, is politically daft.

The focus should be twofold: a) get complementary policies up and running quickly, and b) get some kind of carbon pricing scheme in place, which in future years—as the depredations of climate change become clearer to the public—can be tweaked and improved. Passing the Waxman-Markey bill would achieve both.

David Roberts is staff writer for Grist. You can follow his Twitter feed at twitter.com/drgrist.

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  1. Ken Johnson's avatar

    Ken Johnson Posted 8:28 am
    08 May 2009

    "Political reality being what it is, either is likely to impose a fairly low price on carbon for the first decade or so." This, I think, is the much bigger issue than cap vs tax. People just don't get it. "Price" does not equate to "cost". See here and here. David - Can you do a better job of explaining this?

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  2. BCC Posted 9:17 am
    08 May 2009

     Excellent summary. I am a cap/tax agnostic, but I do know that the perfect is the enemy of the good, a bird in the hand is worth two in the bush, and so forth.
    So the main issue at hand is to get Waxman-Markey a) passed b) in a form that isn't completely compromised.

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  3. BCC Posted 9:30 am
    08 May 2009

     In Sachs' defense, he does close with:"Let me be clear, though. Cap-and-trade is a big improvement over the do-nothing status quo,
    even if it’s less desirable than a carbon tax. If politicians insist on
    cap-and-trade, we shouldn’t let the best be the enemy of the good."
    That seems pretty reasonable.  (More reasonable than phrases like "head-slappingly", by the way, which brings back some of the shrilness I've seen in other posts on grist on this topic.  Please, keep it cool.  Enviro-shrillness is such a turnoff).  

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  4. Earl Withycombe Posted 10:43 am
    08 May 2009

    Reduction of greenhouse gas emissions will require contributions from both industry and individuals.  Cap-and-trade is intended to target industry, and carbon tax is intended to influence personal behavior.  Why not include both in any federal legislation, start with low goals to secure sufficient votes, and then ramp up requirements as needed to achieve evolving goals or offset loophole loss?  If carbon tax receipts are redistributed to citizens on a flat basis (like the Alaska oil tax distribution), personal behavioral change would be significantly accelerated.  Returns on the auction of trading credits could be used to fund the infrastructure needed to increase system efficiency (smart grids, transit, etc.).

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  5. Michael Tobis's avatar

    Michael Tobis Posted 1:41 pm
    08 May 2009

    Since we've been so far from any legislative action until now, I hadn't thought much about the exact form that action would take. So I'm a novice to this part of the debate, looking for cogent arguments. I am not yet trying to stake out a position; I am just reporting my initial reactions to the positions presented in the Yale article.All I have heard from cappers so far, other than the argument that cap and trade creates a cap better than a tax does, is counterarguments to the arguments for the tax, and arguments from expediency ("the document already exists") indifference ("it should be quite possible to reach pretty much the same result from either direction") and failure of leadership ("the general population will not tolerate a tax but  may be fooled briefly by a policy that is not called a tax, which raises energy prices and creates federal revenue").So I have four problems:1) Frankly, it is dishonest to create a Rube Goldberg contraption that is effectively a tax, call it somehting else, and deny that any taxation is involved. It continues the behaviors that make people distrust politics and politicians and the process that keeps the population confused about cause and effect.2) It starts from complexity, leaving it impossible to advocate for simplicity and transparency.3) It is presented as a fait accompli, but I have no idea where it came from. Where was the public consultation? Where was the effort to bring the public on board?4) It smacks very much of business-as-usual, lobbyists, earmarks, etc. Businesses with Washington insider status get huge giveaways. Startups whose skills are actually in energy technology are placed at a distinct disadvantage.In short, all the advantages you propose seem tactical rather than substantive. Even presuming those tactical advantages are true, the origins of the tactical advantage are deeply obscure from where I am sitting. It just feels like something elaborate and unclear is being sprung on me, and that most of the people supporting it are more interested in politics than in science.Kevin Drm's rebuttal to Sachs is typical. It states pretty much that if you put the right ingredients into cap-and-trade it can act a lot like a tax. Your caliing Sachs "head-slappingly false" really doesn't seem to follow from that. If you put the right ingredients into a soup it can taste a whole lot like a chocolate cake, but that is still not what I want you to put my birthday candles in.So again: it's easy to understand what a simple carbon tax would look like and how it could be tuned to achieve desired objectives. A compelling argument would address the follwoing:1) What is cap and trade? Is it better in principle than a tax, and if so, why?2) What exactly is the 700 page bill you are putting up as an alternative? (preferably with a link to the text and another link to a plain-english pointwise summary)3) Where did it come from? Who drafted it? When? What interests are accounted for?4) How are new ideas balanced against established interests? Specifically, given that existing interests are given permits, doesn't it systematically promote large institutional and corporate interests while suppressing startups and innovation? This is a clear weakness: what compensates for it?Again, I am just starting to think about this. Honestly, I am nowhere near committed. Although the "head-slappingly" thing seems contrived to wedge me away, I am not entirely decided yet. Maybe all these questions are answered. All I say is that based on the Yale piece, I am becoming nervous that the answers are not going to be very compelling. 

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  6. GreenMom Posted 8:31 pm
    08 May 2009

    David, a fine summary, and I couldn't agree more.  It's one thing to continue the academic policy debate long after the legislative train has left the station.  You want to navel gaze, fine.  Maybe you'll come up with something someone can use some day. But it's quite another thing to use the academic debate to derail the legislation we have today.  Not only is the perfect the enemy of the good... but hell, don't you people realize how hard it is to get decent legislation passed?  There's a boatload of good stuff in Waxman-Markey.  Are you out of your minds trying to undermine it? Do you think we'll get another chance at those goodies any time soon if it fails?  Don't hold your breath.Waxman-Markey, rock on.

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  7. Tyler Durden Posted 10:16 am
    10 May 2009

    As David pointed out near the beginning of the post, the real issue is what the effect of the different approaches would be.  The problem with cap & trade is not the cap portion, it's the trade portion.  In Europe, where cap & trade has been around for a few years, CO2 emissions are still rising, and the trade portion is mostly responsible.  It does absolutely no good to pass legislation that makes people feel good while accomplishing nothing.  Better to pass nothing until the population revolts and forces good legislation that actually accomplishes something.

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  8. GreenMom Posted 1:07 pm
    10 May 2009

    Tyler, if cap-and-trade were the only provision in the bill you might have a point.  But it's not.  Go back and read David's second bullet.  It's all the other stuff -- energy efficiency, renewal portfolio standards, low-carbon fuel, smart grid -- that we desperately need, that would go by the wayside if Waxman-Markey goes down.Chances are low that we're ever going to get a strong enough cap-and-trade OR carbon tax in this session of Congress.  Let's not throw out all the other critical stuff in the process, and wind up with nothing.

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