Cap dunce

A carbon tax isn't the only solution

Posted by Clark Williams-Derry (Guest Contributor) at 12:45 PM on 07 Dec 2007

Read more about: climate | climate change mitigation | carbon trading | carbon tax

At least someone gets it:

All three of the leading Democratic candidates have proposed cap-and-trade plans that auction 100% of their CO2 permits. This is, economically speaking, the same thing as a carbon tax.

The context: New York Times columnist Tom Friedman is complaining that no major presidential candidate has proposed a carbon tax -- which he takes as evidence that nobody has had the guts to take a stand in favor of policies that would "trigger a truly transformational shift in America away from fossil fuels."

But as uber-blogger Kevin Drum points out, this is simply rubbish.

There are plenty of presidential candidates who are proposing a "truly transformational" shift away from fossil fuels by putting a price on carbon emissions. Yes, they've labeled their proposals "cap-and-auction" rather than "taxes" -- but economically they're peas in a pod. The only real economic difference, besides some administrative details, is in where they concentrate the economic uncertainty: in the price of carbon (for cap-and-trade) or the effectiveness of the program (for a carbon tax).

I'm not sure if Friedman doesn't understand this, or if he's just miffed that the candidates haven't adopted his preferred carbon pricing system. To his credit, Friedman's been a long-time carbon tax supporter. But claiming that taxes are the only "transformational" pricing policy for fossil fuels is silly.

Update: Here's even more speculation on what Friedman was thinking.

For story: Cap dunce
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See also ...

... Matthew Yglesias:

To me, this kind of pundit fuck-up -- declining to give credit to people who deserve it -- is probably the most damaging kind. For better or for worse, Friedman's become one of the leading voices on climate change and energy issues. And he's a very influential columnist. People probably read him hoping to see which politicians, if any, someone who finds his columns convincing should be supporting. In this case, they should be strongly favoring whoever wins the Democratic nomination. But Friedman won't say so. Instead, in order to reach a pox on both houses conclusion he finds himself ignoring the very strong similarity between auctioned permit plans and carbon tax plans. But if this is the treatment candidates stake out bold eco-friendly positions are going to get from prominent advocates, then who's going to bother. You can be sure the fossil fuel industry knows which politicians are their friends and which aren't. The ones who aren't need people to have their backs, not to just get slandered coming and going.

grist.org

by David Roberts at 12:47 PM on 07 Dec 2007

Is it a Carbon Tax?

I'd give Friedman a little leeway here. While it's true that a cap and trade with 100% auction would be pretty much equivalent to a carbon tax, we've never seen that model of cap and trade applied (to the best of my knowledge). Cap and Trade inherently opens up the door to political deals and shenanigans and gives the option of ignoring some carbon sources.

by KenG at 1:05 PM on 07 Dec 2007

Auction is NOT the same as a tax

Actually, a cap-and-auction is very different than a tax, with very different ramifications.

With an auction, the year-to-year prices for "Credits" are uncertain - they are based on the supply (known, or at least predictable), and demand - which is NOT known, and not really that predictable. (Placing caps upstream helps this problem, but does not alleviate it). The volatility shown in the European carbon markets has been dramatic - and that volatility is very problematic.

I'm assuming we all agree that a massive overhaul of our energy infrastructure is what is needed,meaning that companies must do more than simply tweak/retool existing operations. As a society we must invest in entirely new pathways - merely adding scrubbers to coal smokestacks or increasing fuel economy by 2 mpg is not going to cut it.

The whole premise of carbon trading (auction or not) is on allowing economic flexibility - that companies can decide whether it makes more "financial sense" to actually reduce their emissions, or to buy excess credits from the market. But when a company looks at cost projections of buying excess credits on the market vs. actually reducing emissions - with an auction approach they can't do that long-range cost analysis as the price is too volatile. This is a major barrier to long-range investment and the true infrastructure shifts we need.

However, with a carbon-tax, the cost of emissions is known each year. And then companies the economic tools and incentive to develop the long-term infrastructure changes that we need. They can say "well, we might make less money this year, but in 10 years with carbon costing $xxx - we'll be much better off".

And to be fair - I'm making these arguments solely from an economic standpoint - there are plenty of equity concerns with carbon trading as well - who participates? Who regulates?

-Matt

by mleonard at 4:59 PM on 07 Dec 2007

Taxes are scary....

Many people are afraid of the word "tax". they hear the word "tax" and they want to vote it down, no matter how small it is, or what it's for. Though it does differ somewhat than the "tax" most people would think of, they'd still be more likely to oppose it if it had the word "tax" in it. Callin' it a cap-and-trade system doesn't get the same automatic negative response as callin' it a tax would, so it's more likely to pass (In the eyes of the general public at least).

It's a psychological thing.

by Tasermons Partner at 5:43 PM on 07 Dec 2007

Please do some research before posting.

Practically speaking, a tax is far different than a cap and trade system. They work quite differently and can produce quite different results.

Cap and trade requires a whole system set up with transparency, accounting, and verification. It requires markets and those markets can be volatile.

A carbon tax would address all sources of carbon from all sectors, while most cap and trade schemes often apply only to electricity generation.

by riverguy at 5:58 PM on 07 Dec 2007

tax is a three letter word

I don't understand the complexities of trade versus tax--I've heard there are big problems with cap-and-trade, though. And I've seen the observation that EU has had cap-and-trade for some time and their emissions have gone up.
So a tax might be better--and it seems to me it needn't be so hard to sell as long as we emphasize that it REPLACES INCOME TAX.

by mwildfire at 6:47 AM on 11 Dec 2007

ADVERTISING POLICY

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