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  Carbon Tax vs. Carbon Trading

  Mr. Krupp,

  I found your out-of-hand dismissal of carbon taxes to be quite specious. Here's why:

  Argument #1: A carbon tax will not be simpler because the tax structure is incredibly complex, so that carbon trading will not be a simple as carbon tax proponents claim.

  My response: The reality is that a carbon trading system will necessarily be far more complex than a carbon tax. So, the argument given is not only false, but quite the reverse. Under a revenue-neutral carbon tax system, prices are set based on the unit of fuel sold and prices per energy type are fixed based on the amount of carbon released by that unit (whether it be a gallon of gas or a therm of natural gas). In this way, there are no concerns about a loophole, since the quantity of fuel units is already measured for each fuel type.

  Argument #2: A carbon trading system is preferable because you set an overall limit for carbon emitted each year, whereas a program of carbon taxation doesn't have any such guarantees.

  My response: Even if one accepted that statement at face value, another way to frame the statement would be say that under a carbon trading system there is a minimum of the amount of carbon that will be emitted each year, since by setting a hard cap, all carbon credits will be bought at some price. Putting aside the question of framing, the statement is not true since the price elasticities for energy types and sectors has been studied quite closely for decades, so the overall carbon output for a specific price per ton can be predicted quite accurately. Additionally, businesses and individuals will be better able to estimate the future price of energy sources, if the price of carbon is set for modest increases each year for ten years.

  There are many more reasons why a carbon tax is preferable from an environmental, social, economic, and governance perspective, but these were the only two points during the Charlie Rose interview. We are all concerned about limiting GHG emissions, bu twe must acknowledge the economic cost that comes from putting a price on what is currently considered an externality. There is a fundamental dishonesty among many proponents of carbon trading to dismiss the economic cost of lowering emissions and the regressive effect it will have as Americans struggle with higher prices, regardless of the state of the current economy. In my view, all of the revenue must be returned directly to tax-payers to help off-set the effects of the tax.

  Please explain yourself without handwaving about tax loopholes or denying the theory of price elasticities.

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  The video can be found embedded in the original post:
  http://gristmill.grist.org/story/2008/6/20/111828/994On EDF chief rejects oil drilling as response to energy woes posted 1 year, 4 months ago 3 Responses