A couple of days ago while listening to “Marketplace” on NPR, I was suprised to hear the psychotically cheerful host, Kai Ryssdal, announce an upcoming segment on the difference between a carbon tax and a cap and trade system. I turned up the volume.
What I learned was this: carbon pricing is way too complicated for a short radio segment, even on the relatively cerebral NPR. The only person who seemed to truly understand the issue got quoted with exactly four sentences. And two of them were short.
The truth is, climate pricing ain’t simple. But as an attempt to make it at least understandable, Sightline’s put together a handy primer that we’re calling Climate Pricing 101. We think it’s a good first step toward characterizing the big three options in climate pricing: taxes and the two flavors of cap and trade (“grandfathering” and auctioning).
Take a look and let us know what you think. We’d like this to be a helpful resource for understanding the issues without getting buried in the weeds. And I’ll admit right up front that the issue quickly gets far more complicated than what we’ve included in the primer. So if you have remarks about ascending-clock auctions or redistributing RECs for LSEs, hold that thought. That’s for the 102 class.
Well, since you asked for comments, here you go:Cap-and-auction:”Any major fossil fuel user”: should this be “carbon emitter”?”their allotted number”: there is no allotment for cap-and-auction”granted some credits for free”: does this belong in cap-and-auction or in grandfathering?”Industries with high emissions and low profits will typically be the low bidders”: This is a bit confusing; don’t you just mean that industries with cheap ways to reduce their carbon emissions will do them as long as the cost is less than the cost of buying permits?”Price volatility…is less of an issue in an auctioned vs. grandfathered system”: I don’t immediately see why this should be true. Are you sure it is?”State only?—May require regional/national system.” I disagree. If you can do a state carbon tax, you can do a state cap-and-auction.”Larry Goulder”: You might mention that he’s an economist, and that economists in general think that cap-and-auction would be swell. Carbon tax:”a fee on all fossil fuels”: as above, it might be broader than this.”Efficient: Many economic models find that a tax has a smaller cost to the economy than a cap-and-trade system”: Really? Not as far as I know. Isn’t the “low-cost reductions” you tout in the cap-and-auction section above the same thing as efficiency?”covers 90 percent of CO2 emissions”: is this 90% of fossil-fuel-related emissions, or 90% of all carbon emissions?”Economists across the ideological spectrum”: This gives what I think is a misleading impression that most economists would favor a carbon tax over cap-and-auction. Also, it doesn’t convey what I think most economists would agree is the main point: cap-and-auction and carbon taxes are very similar and are both at the top of the list of Our Favorite Policies, with grandfathered cap-and-trade coming in a fairly distant third place (but probably still ahead of all those policies that non-economists are so fond of 🙂 Grandfathered cap-and-trade:I think it’s odd to treat this as a different beast than cap-and-auction. The line can sometimes be fuzzy—what about a program that grandfathers 25% of the permits?—and I think it makes more sense to call them cap-and-trade option #1 and option #2, with a spectrum in between.”reducing emissions 22% below government mandated levels”: You mean 22% below the cap? If that’s true, that’s weird: what’s happening with all those other permits? And even if it is true, I doubt that we’d see anything like that with carbon emissions, so the suggestion seems to me to be a bit misleading.”Smooth transition”: Yeah, for the emitters. But not so much for their customers, who get to deal with higher prices without, e.g., the tax cuts that could be financed with auction revenue.Ditto on some of my comments from above (about cap-and-auction).Overall: With a bit of fine-tuning, this could get even better 🙂
Yes, I think a glossary is very useful. The paragraphs (and links) to what nation states are doing are great! Please do add a date (to the whole thing or to those paragraphs), so that we know how recent the description of hte political situation is.