Thursday, August 13, 2009

Cap and trade vs. a carbon tax

David Brooks over at did a recent post about a great report at about cap-and-trade.  The three part series (part I, part II, part III) by  analyzes what we can learn from already established pollution trading schemes.

Meanwhile, the WSJ and Felix Salmon's blog are rehashing the carbon-tax vs. cap-and-trade debate.  Salmon also did an earlier post in 2007 on why he thinks cap-and-trade is better that's also good reading.

Also, you may remember that I did a couple of posts on cap-and-trade and Waxman-Markey last month.

Personally, I'm not sure which approach is the clear winner, but my guess is that either could work if well implemented and either could be a miserable failure if botched.    In terms of simplicity and transparency, the carbon tax seems to win.  While for flexibility, cap-and-trade probably wins.  But IMO, that debate is moot.   Most political analysts believe that there's zero chance of any carbon tax bill passing in the US, leaving cap-and-trade as the only politically viable way forward (assuming you think the problem needs to be addressed - which I do).

I actually read through most of the cap-and-trade provisions of the Waxman-Markey Bill, and they appear to be painstakingly stitched together  to create a perfect blend of winners and losers so as to just barely get the bill passed.  For better or worse, I don't think a carbon tax bill would have been able to pull off such a delicate political balancing act.  Whoever said the legislative process was a lot like making sausage sure got that right.


  1. The ongoing debate between Cap & Trade vs. Carbon Tax is not yet moot and may not be decided by the passage of ACES.

    In fact, a Carbon Tax may well become a viable "Plan B" should the C&T provision of ACES be further diluted by the Senate or in conference committee.

    Many anti-C02 warriors are concerned about the "take it or leave" approach of some environmental and green energy groups to ACES.

    Today's Wall Street Journal has a thought-provoking article on this controversy.

    Note that the originator of C&T, Thomas Crocker, has lost confidence in his own innovative idea and now supports a Carbon Tax.

    Crocker prefers "an outright tax on emissions because it would be easier to enforce and provide needed flexibility to deal with the problem". Crocker further argues that "once a cap is in place, it is very difficult to adjust".

    Two other prominent C&T thinkers, John Dales (now deceased) and David Montgomery, are equally skeptical.

    That Crocker and other C&T theorists no longer support this approach and opt instead for a Carbon Tax is a significant shift in thinking. Now add Al Gore and Dr. Jim Hansen to this growing list of Carbon Tax advocates and a Carbon Tax may become more politically palatable for industry.

    The fact that the WSJ devotes a half page to discussing this controversy suggests that important segments of American business may be considering a simpler tax rather than a cumbersome trading scheme.

    Regardless, the Cap & Trade vs. Carbon Tax discussion will continue in Nashua on November 19 (18 days before Copenhagen).

    Several Carbon Tax advocates will be making presentations at a full-day conference: Clean.Green.Renewable: Planning New Hampshire's Energy Future.


    --Farrell S. Seiler, Chairman
    Carbon Action Alliance
    PO Box 693
    Littleton, NH 03561

  2. Farrell,

    Thanks for the comment. It is interesting that this debate is getting aired again and perhaps you're right that there's new support from some in industry for a carbon tax.

    Still, I count myself as rather skeptical about that. To me, unless, as you suggest, cap and trade crashes and burns in the implementation phase, or if the current drive for action gets halted, I can't see the momentum for cap-and-trade getting overtaken at this point.



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