Unfortunately, Dingell doesn't seem to understand that a cap on emissions is fundamentally the same thing as a tax on emissions.  Both systems will raise the price of carbon.  

So I'm not sure I understand his comment about how Congress may enact a cap-and-trade system, only without a carbon fee, since the cap meets the same goal.

the advantage of auctioning permits is pretty much that allocation is no longer left to political whims and the influence of special interests.  Auctioning also provides revenue for the government.  Something a tax does, but C&T wouldn't if permits were allocated freely.  

Just to be clear: Economic theory tells us the cap and tax are the same.  It is political theory that tells us auctioned permits are preferable to free ones.

The differences in allocation systems, under a C&T, are simply differences of where the property rights over carbon emissions are granted.  It is inherently a legal and political aspect of the system, not an economic one.

A C&T with free permits is basically a carte blanche starting point:  Until now there have been no rights over carbon emissions, so they're up for grabs.

under a system with auctioned permits, the government is laying claim to emissions rights and industry must pay the government for the use of those rights.

Economists and environmentalists that engage in cap-and-trade bashing just play to his hand, which is to delay meaningful carbon legislation as long as possible. Why not ask for both? One downstream and one upstream and see if he really supports that?

There is progress here, and that's that the conversation has shifted to fighting about solutions.

Tom Arnold Chief Environmental Officer TerraPass

First, they are simply wrong.  I've written rebuttals to each of the CTC's arguments for a tax over C&T.  If anyone is interested, I'll repost them here.

Second, they are delaying progress.  Maybe knowingly, maybe unknowingly, but they're doing it.  There are various C&T bills floating around, and most people think it's more politically feasible.  Why not spend the effort to mold and shape those bills rather than arguing (wrongly) that a tax is superior.

Could you explain why C&T can't be levied upstream?  Is it because of the number of potential participants?

Also, I'm not so sure that upstream is really what we want.  A price on carbon does two things: encourages conservation, but it also encourages innovation.  Who is more likely to innovate, a few upstream sources or the thousands of downstream sources?

Also I think you're creating a false dichotomy here.  There's no reason that large emitters can't be regulated downstream while some sources (residential, commercial, etc.) fall under upstream regulations.

Pointing out that transaction costs are important is great.  But I think they're also exaggerated as an argument against the C&T.  Or have we forgotten about this thing called the Internet?  The fact is that online exchanges vastly reduce those transaction costs on which your argument seems to rely.  Am I wrong in thinking this?

http://www.env-econ.net/carbon_tax_vs_capandtrade.html

You non-economists might not understand what the models show, but you should be able to understand the conclusions.

In terms of the market failure, the negative carbon externality, both a carbon tax and carbon cap-and-trade will achieve the same level of increased efficiency by achieving the optimal abatement level at the minimum cost. The only difference is the distributional implications. The cost to the firm is lower for carbon cap-and-trade. The government receives tax revenue with a carbon tax. Both policies are preferred over techological or output standards (i.e., command and control regulation).