I never thought it would happen, but it looks like a carbon tax might actually become a viable policy option in the U.S.
In the Washington Post, Juliet Eilperin and Steven Mufson discuss growing support for a tax over a cap-and-trade system. If you read between the lines, it basically breaks down like this: economists and policy wonks prefer a tax, because it would provide a predictable price trajectory and would be less subject to gaming and manipulation.
Legislators, on the other hand, prefer a cap-and-trade system precisely because of its complexity -- that complexity will serve to hide price increases from customers. (Make no mistake, though, either option means higher prices for consumers, at least for the foreseeable future.)
(The outlier from this pattern is green group Environmental Defense, which seems to genuinely prefer cap-and-trade on the merits. You can see their argument in this post or this press release. The fact that they pioneered the sulfur trading system may have something to do with it.)
The politics of this are interesting. As this article describes, carbon taxes are popular on the right as well. One of their biggest champions is Greg Mankiw, late head of George Bush's Council of Economic Advisors and economics professor at Harvard. Check this out:
Mankiw said he would support carbon and gasoline taxes, even if science proved that global warming was not linked to CO2 emissions, because of the impact such taxes would have on other externalities such as urban congestion and vehicle accident rates.
Mankiw's also got a blog, where he discusses energy taxes frequently.
So what do we think? Can the combined forces of green wonkery, left wonkery, and right wonkery overcome the forces of risk-averse politickery?
DeFazio lambasts cap-and-trade
Comments View as Flat
Karen Street Posted 2:24 am
03 Apr 2007
Cap and Trade
With cap-and-trade, you know the emissions but don't know the cost. With a tax, you know the cost but don't know the emissions. This sets up the divide: policy academics prefer cap-and-trade, economists less than 100% committed to reducing GHG as fast as possible prefer taxes.
Europe is going the way of cap-and-trade, and it makes sense for the US to sign onto an existing structure. For some sectors, for some countries, a tax may make sense, but the cap-and-trade system will predominate.
The developing world will not sign on to working with the developed world on tax/cap-and-trade until systems are in place. I hope that we in the US can sign onto cap-and-trade for at least some sectors.
Cap-and-trade is not currently being applied to some sectors in Europe -- all transportation, I believe. The current proposal is to tax flying. Let us hope this starts earlier rather than later!
Karen Street
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Gar Lipow Posted 3:25 am
03 Apr 2007
Carbon Taxes are faster ways to reduce emissions
A carbon tax can have the same amount of certainty as a perfect cap and trade even over a comparatively short period. If carbon taxes produce too small a reduction one year, they can have an automatic escalator clause to raise them higher than they otherwise would have grown the next until emissions reductions catch up to where they should be.
However that only compares to a perfect carbon tax to perfect cap and trade. While both a carbon tax and a trading system can be gamed, trading systems have many more openings for such gaming that a tax system. In the real world, where both are likely to be implemented imperfectly, an imperfect carbon tax is likely to reduce emissions with more certainty than an imperfect trading system. People who pay attention to empirical data, and real world performance tend to favor a carbon tax over cap and trade.
Lastly, any certainty that comes from a cap and trade comes from the cap, not the ability to trade. Auction permits as far upstream as possible and you will have a cap with very little trading.
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VTpowderhound Posted 3:27 am
03 Apr 2007
tax is the way to go
Count me among the carbon tax proponents. Increasing the cost/price of a product or service is almost always the best way to discourage its consumption. As for the argument that says, "but those added costs will be passed on the consumer!", I say, bring it on. It is a fallacy to suggest our energy-intensive lifestyles are not part of the problem. Our knee-jerk aversion to any kind of sacrifice is quite dispiriting, and speaks to the fact that, as a society, we still view CO2 emissions and climate change as a problem for future generations, not our own.
I also hold the cynical view that industry would water down a cap & trade system so much as to render it largely ineffective.
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Steve Bloom Posted 4:38 am
03 Apr 2007
Speaking if cynicism...
...I would suggest that there are plenty of legislators who prefer cap and trade precisely because it is so subject to gaming. The only real certainty with cap and trade is that some Wall Street types will make a great deal of money.
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ajithsrn Posted 12:21 pm
03 Apr 2007
Carbon Tax a good option
One of the ways in which we can put the real cost for a product/ service (including the liabilities caused to society like pollution, congestion etc.) would be by taxing the negatives. Here are some good articles about this topic:
http://www.globalsystemchange.com/GSC/Articles.html
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b e r n a r d o Posted 12:25 pm
03 Apr 2007
About E.D.'s Integrity and Judgement
I can't claim to be an expert on the pros and cons of emissions trading versus a carbon tax.
However having thought a bit about Environmental Defense (E.D.) as well as the Natural Resources Defense Council, I am quite cynical about some of their policy approaches. These groups are structurally quite close to elite and corporate interests which in my view skews their agenda.
You find a little discussion of my concerns about E.D. in my comments regarding the new book by Teresa Heinz and John Kerry. While I applaud their concern for environmental issues, I find Heinz's association with E.D. at odds with the grassroots environmentalism that is celebrated in their book A Moment On Earth. http://www.grist.org/news/maindish/2007/03/29/kerry/
In the post by Bill Chameides defending E.D.'s integrity, he points out that "Environmental Defense also does not accept money or donations from any business or corporation that we partner with."
http://gristmill.grist.org/story/2007/2/12/102851/837
The webpage on E.D.'s corporate partnerships, we do find FedEx and McDonalds as mentioned by Chameides, but we also see Wal-Mart. (By the way, E.D. has consistently failed to reference the grassroots campaign against McDonald's and its foam packages which moved the company to partner with E.D.)
Well as Grist has pointed out, it just so happens that Sam Walton Jr., son of Walmart board chair Rob Walton, sits on the board of Environmental Defense.
http://www.grist.org/news/muck/2006/07/19/gore-walmart/
An examination of E.D.'s annual report for 2006 shows us that they received a grant of over $100,000 from the Walton Family Foundation (WFF) -- yes the very same Waltons of Walmart. Looking at the website of WFF, we find a donation to E.D. of $541,170.00 in 2004.
While this may not be a direct donation from Walmart, clearly the Waltons represent the interests of Walmart. These donations seem to be odds with the statement by Chameides that E.D. does not take donations from companies with which it partners.
Furthermore, the case of the Waltons exemplifies the structural straitjacketing of E.D. by interests -- investment bankers, CEOs, corporate lawyers, and others -- that benefit from weak and watered down environmentalism, thereby encouraging and promoting staffers who will advocate policies beneficial to these interests. Note that Enron which had close ties to E.D. had hoped to make billions in trading carbon.
There's more to be said, but I'll leave that for another time. In closing I'll just note that it was E.D.'s executive director Fred Krupp who met with candidate George Bush and elicited the promise that as president he would address global warming. We saw what came of that "partnership".
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Pandu Posted 11:09 pm
03 Apr 2007
another kind of fuel burning
Whether it's cap and trade, or a tax, the vegetarian movement could get a boost.
Here's a relevant statistic: American meat eaters are responsible for 1.5 more tons of carbon dioxide per person than vegetarians every year. (http://www.csmonitor.com/2007/0220/p03s01-ussc.html?s=hns ...)
The cost of a tax could be passed on to consumers, which would hopefully help people choose vegetarian foods more often. Or, people could commit to vegetarian diets and sell their "right" to the extra pollution to the walking graveyards.
I like the tax option much better. I would feel pretty guilty selling my excess pollution, and I would probably benefit more by a carbon tax.
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akbeancounter Posted 4:41 am
04 Apr 2007
Handcuffing the Poor
Either way, we're going to have a problem with rising heating costs for the poor. I'm not just talking "starving artist" poor. I mean "don't eat at all so you can afford to feed your daughter" poor, "walk three miles to work at 11pm because you can't spare fifty cents for the bus" poor. These are people who already economize anywhere and everywhere possible, who have few or no luxuries they could give up, and who would be devastated by even a modest increase in their monthly bill.
If we're going to employ either a cap-and-trade system or a tax, we'll need to pair it with either efficiency projects or further subsidies for low-income utility customers. Otherwise, we risk making things even worse for our most vulnerable citizens.
Taking accounting to the extreme since 2004.
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No Sweat Solutions to Global Warming Posted 5:53 am
04 Apr 2007
Low income people
True enough. And not just low income utility customers, but low income drives, low income purchasers of goods and services whose price is raised by a carbon tax.
There is a really simple way to do this. Take all of the revenue raised from such a tax. Divide it equally among the U.S. population. The very rich emit a great deal more carbon per capita than everyone one else (Yachts, private aircraft, 6,000 plus square feet homes and so on) and the rich and upper middle classes also use more than the U.S. average (more plane trips, larger homes and so on). So this will make the net effect of the tax slightly progressive - with the poor getting back more than they put in, hourly workers, and most professionals getting back about what they put in. But you still have the incentive - so you get the behavior change without the regressivity or the arguments about what programs to put the money into.
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