When the government taxes cigarettes or alcohol, it doesn't tell me how to avoid smoking and drinking, it just expects me to figure out -- as a rational consumer -- how to avoid those substances if the taxes are too onerous.

At the root, both a tax and a C&T system are redistributive systems.  The question is who should do the redistributing.  Do we let the govt do it, who we at least have a vote on, or do we let business ("the market") do it?

And the answer to that question depends on who you trust more:  Nancy Pelosi or the minds behind Exxon, Enron, and ADM?

It is just as stupid to expect mandated fossil fuel profits in government hands to be spent cancelling future mandated fossil fuel profits, as it would be to expect Exxon-Mobil's shareholders to spend their dividends on reducing future dividends.

--- G. R. L. Cowan, former hydrogen-energy fan
Oxygen expands around B fire, car goes

http://www.econ.yale.edu/~nordhaus/kyoto_long_2005.pdf

I used to think cap and trade was better but changed my mind after reading this and investigating it some more.

J.S.

Economic Illiteracy Harms The Planet! www.voicesofreason.info.

If I were a CEO of a large corporation capitalized on inventions that use energy, like light bulbs and jet engines, then I would do everything possible to protect my consumers from a carbon tax.  

Carbon taxes are not subsidies.  Cap and trade is a subsidy.

Why are environmental organizations so jealous of big business?  Could it be the desire for big political influence or is it like the Stockholm Syndrome?

The Sky Trust has long since proposed this as part of a permit auctioning system. (I refer to it as permit auctioning rather than cap and trade, cause most polluters would buy permits as they need them, so there would not be a whole lot of trading going on.)

For various reasons, I still prefer a carbon tax (less volatility, less red tape, more transparency, less room for changes that undermine the system to happen off the radar).

J.S.

Economic Illiteracy Harms The Planet! www.voicesofreason.info.

One point that needs emphasizing is that incrementally raising the price of dirty energy is not necessarily enough to generate the kind of fundamental energy shift we need. There's a century of dirty-energy infrastructure in place and a skein of fossil-friendly legislation and regulations. There are artificially high barriers to entry in the energy market.

All of which is to say: as our own Gar frequently reminds us, there's no way around the need for substantial direct investment from government to stimulate the clean energy market. Public works projects: your past and your future!

grist.org

1. Most of the concerns expressed by Chameides involve giving that tax money to the government who would just fuck everything up. Giving the money back to consumers with tax relief in other places would fix his concerns.

2. The weak link with government investment is that it may all go to something like nuclear, or ethanol or God knows what else.

Giving the money back to consumers with tax relief in other places would fix his concerns.

The usual basis for tax relief is specific credits/deductions for specific items or technologies.

So, instead of a direct subsidy paid to ethanol producers, you would wind up with a tax credit for consumers to purchase E85 vehicles.  The end result is pretty much the same.

The other problem with federal tax relief is it's one size fits all.  So, while a tax break for solar PV cells might make a lot of sense in CA, AZ, NV and other locals, as sunflower has pointed out ad nauseum, it isn't particularly effective in the Pacific Northwest.

Even if the money doesn't go directly to the government, they still write the rules.

Common sense is an oxymoron...

First, how a cap-and-trade differs from a tax in terms of consequences... Nordhaus is a world-class economist, but even he never addresses the fact that a carbon tax cannot meet the essential need of good climate legislation: a guarantee that specific emission targets will be met.

No one knows what level of taxation will cause the necessary behavioral changes to get the carbon emissions cuts we need. I'm not a political expert or an economist, but it's a safe bet that the tax will have to be very high - a non-starter in Congress. Given that climate change is urgent, we should go for the option that (1) guarantees the results we need, and (2) can pass Congress.  

Secondly, it's not a question of who you trust, but which mechanism can work most effectively. The market - not individual CEOs, but thousands of venture capitalists, entrepreneurs, and traders looking for profit - does a better job at finding and funding solutions. They also have access to a lot more money. And as for government subsidies - look at the historical facts: Congress has been picking favored energy technologies for subsidies for decades, and it hasn't solved the problem.

Cap-and-trade is not just theory. We used it to address acid rain and we met targets ahead of schedule and at 30% of costs. At the time there were lots of people, businesses and environmentalists, who said it would never work, it would be an economic disaster. As it turned out, they were wrong.

www.climate411.org

1. definitely the weakness of the tax is that it doesn't guarantee a precise reduction in CO2, but as Nordhaus points out, the cap and trade really doesn't either because of the leakage and difficulty with monitoring and enforcement

2. a tax works on exactly the same varied market incentives that a cap and trade would, but it has the benefit of not falling prey to "grandfathering" which is highly likely with CO2 permits- the tax is set and all actors are immediately affected- also, like permits, they can be phases in over time

3. yes, a carbon tax would have to be high and that would be politically difficult but again, if paired with major tax DECREASES for the middle class it could work. also, a tough cap and trade would dramatically raise the price of CO2 and have the same effect as a tax anyway, which is why almost all of the proposals have "escape valves" that weaken the system from the start

--John Bailo, Chief Scientist, The Texeme Construct

I'm not sure this statement is correct: "Unlike a tax, it encourages innovation by creating incentives and rewarding those who lower emissions at the least cost."

A tax simply puts a price on emissions, so companies that can reduce them will have to pay less tax.. this creates an incentive for cleaner technologies, much the same way a cap-and-trade would.  

Setting the tax amount would be difficult, but so is allocating the right amount of permits.  I think the advantages of a tax are:

• it's easier to apply (no allocation or trading system needed)

• It can cut across ALL sectors of the economy, preventing playing favourites

• the gov't revenues can be applied to reduce other taxes - NOT necessarily directed to subsidize a few technologies.  
  

The cap-and-trade system could work as well, and some businesses favour it because they generally dislike taxes and see it as more 'market-based' somehow, but I don't think the essay above makes a very strong argument.

1. Leakage refers to the tendency for emissions to "leak" from a capped system to an uncapped system. This happens when manufacturers move production to an uncapped country so they can meet demand without incurring the increased costs of the cap. It is important to note that Nordhaus only brings this up as a problem for Kyoto, where developed economies are capped and developing are not. Within the US, cap leakage would not, by definition, be a problem.

In the absence of an international regime, there would be a tendency for leakage outside the US. But the same would occur for a carbon tax! If some countries had a carbon tax and others did not, there would be a tendency for production and emissions to move to the countries without the tax. That's why we need an international regime. And the best way to make that happen is for the US to have its own meaningful climate policy. Hopefully, we can all, at least, agree on that.

2. Difficulties re monitoring, enforcement: Yes there are complications associated with implementing cap-and-trade, but they are manageable. I'm not trying to say cap and trade won't be complicated, but a tax is no walk in the park either.
3. Grandfathering: There are a variety of ways to implement a cap-and-trade, and not all are based on allocating allowances based on historical emissions. Systems can even be developed that reward early actors, and penalize companies that try to game the system by jacking up their emissions at the last minute.
4. Costs: Both a tax and a cap-and-trade can raise costs. It's a question of which is the most cost-effective path - history suggests it is cap-and-trade. And finally don't forget we are talking about avoiding dangerous climate change. ONLY a cap can guarantee that we will meet emissions targets.

Cap and Trade appears to have corporate support, so most likely some form of it will be passed.  In the form that is passed it will probably not reduce GHGs, mainly because industry lobbyists will write the laws instituting it.

Tax credits to consumers of renewable energy and renewable energy and conservation devices could actually reduce GHGs. All payed for with cuts in subsidies to agribizz fuel farming and fossil and nuclear energy industries.

This would take a huge grass roots effort to reform lobbying corruption and energy policy.  But I just don't see any other way forward.

Cap and trade or carbon taxes will be manipulated by industry lobbying, it is all too complicated to moniter and will be used to maintain the status quo corporate power structure.

 

http://amazngdrx.blogharbor.com/blog John Schneider, Northern Wisconsin

A previous commenter referenced an outstanding analysis of these alternatives by economist William Nordhaus:
http://www.econ.yale.edu/~nordhaus/kyoto_long_2005.pdf

I'm happy to see that most posters appear to see through the specious arguments of Mr. Chameides. If we are to solve the greenhouse problems, our major environmental organizations need to rise to a higher level of discourse.

Vince Taylor

From my viewpoint - if cap and trade has a greater political shot, and we all know we need to act soon, let's get something going!

The idea that cap and trade relies on the market and taxes, or for that matter traditional regulation, does not is just wrong.  Cap and trade changes the existing market by mandating emission reductions, but allows those with caps to pay others to reduce in their stead.  Traditional regulation creates a market in the purchase of pollution control equipment needed to meet standards.  And taxes creates an economic incentive to pay for equipment or other changes to reduce emissions.  

It's fine to recognize that cap and trade has the greatest potential at the moment to gain traction in the current U.S. political climate.  But a bit of realism about the relative merits of mechanisms will pay dividends in the long run.

David M. Driesen Angela S. Cooney Professor Syracuse University College of Law

With the currently weakened (pathetic) EPA we have now (thanks, GWB and Republican leadership), can we really believe that setting a cap will work? EPA is in court trying to fight the idea of monitoring GHG as we blog! A tax could be on the fossile fuel itself- purchases are easily monitored, emissions- not so much.

a liberal in redsville

Hi greenfire. I want to respond to your post asking about conflicts of interest at Environmental Defense.

Sorry, there's neither smoke nor fire here. Environmental Defense is strictly nonpartisan. We take pride in the fact that we partner with unlikely allies to reach important environmental goals such as the elimination of Styrofoam packaging in fast food restaurants (McDonalds), and the development of a new generation of clean and more efficient delivery trucks (FedEx).

We are also proud of the role we played in launching the Environmental Resources Trust (ERT), a non-profit organization dedicated to developing market mechanisms to address environmental problems. Note that once ERT reached maturity, Environmental Defense severed all official ties with it. No member of our Board or staff currently works for or serves on the Board of ERT. (See the list of current ERT board members.)

Environmental Defense adheres to strict ethical guidelines. We meet all 20 standards for charity accountability set by the Better Business Bureau's Wise Giving Alliance (see report). The fifth standard specifically bars any transaction in which a board or staff member has a conflicting material interest.

Environmental Defense also does not accept money or donations from any business or corporation that we partner with, that stands to gain materially from the work we do, or that's directly responsible for pollution. For details, see Environmental Defense's Corporate Guidelines.

Our only agenda is the environment. Environmental Defense's advocacy of cap-and-trade is based on our long-standing commitment to fighting global warming, and our belief that the best way to do so is with appropriate markets incentives.

Cap and trade is an indirect tax too.  To be effective, it would necessarily raise fossil fuel prices but unliked a tax the increases would be volatile and unpredictable.    

Cap and trade's main advantage is that it's not called a "tax."  It's a way to create a new market for carbon emissions and new set of fat-cat traders.

A tax uses the existing energy market and creates much broader incentives for everyone to get into the energy conservation and alternatives business.

Health Care?
Finance?
Real Estate?
Homeowners Insurance?

Even the automobile and airline industries are in seriously deep doo-doo.

Of course cap-and-trade is working out so well in the EU and nobody's been caught gaming the system right? You could tell us all about those frabjous emissions cuts they've achieved.

Oh yeah.

Meanwhile that unofficial carbon tax imposed by OPEC is choking Detroit automakers who bet the farm on selling lots of big SUV's and pickup trucks. Americans, who are finally getting a clue after five years that invading Iraq does not mean cheap gas are staying away from car lots in droves; unless they're buying a Prius.

Since absolutely nothing is going to happen this year and any law congress does pass is likely to have a four year lag on it it's all freaking moot anyway. Nature bats last and the impact is starting to hurt.

Good luck with that.

Put the Carbon Back

Objection to subsidy:  Targeting specific technologies leaves possibly more successful ones out.

You can let really free markets choose, without carbon trading.  How?

By subsidizing GHG free energy per kwh produced and conservation per kwh, or it's GHG equivalent saved.  The best tech gets the most subsidy.  Period.  So consumers, the free market, buys the tech that gets the most subsidy and produces the most GHG free energy and saves the most GHG.

By taking the subsidy funds from fossil, coal, and agribizz fuel farming the whole scheme is tax neutral.  no new taxes.  Cutting subsidies raises the cost of GHG producing energy, discouraging it's use through truly free markets.  markets operating on a level playing field, stripped of artificial advantages for huge multinational oil, coal, and ag companies.

Carbon caps can be arbitrarily raised at anytime by politicians pandering to lobbyists.  The GOP sweeps, caps are raised.  Democrats return, caps are adjusted down a bit, maybe, if they have the votes?

Finally, carbon emission permits are sold by the government.  That money is used for subsidies, for the wrong stuff.  Clean coal, nukes, and ethanol.  Then the carbon permits enter into a hedge fund scammed trading system, a bubble blows up, bursts, and taxpayers are left holding the bag.  as in the mortgage crisis, and soon in the ethanol/corn farm land bubble hedge funds are working on now.

Hedge funds are not amenable to free markets.  They destroy free markets with insider trading and manipulation.

Simple subsidy diversion with direct payments to investors in home, farm, and small business renewable energy and conservation would be harder to scam.  Government would only choose technology for it's own buildings and vehicles.  NREL would set up tests to verify savings of GHG from various systems.  Regulation would involve random spot checks of installations to verify GHG savings.

http://amazngdrx.blogharbor.com/blog John Schneider, Northern Wisconsin