We’re continuing to make improvements to the Climate Pricing 101 page. So if you found it confusing earlier, take another look. It’s getting better all the time!
I’ve also been asked to provide a shorter summary here. So, if you want climate pricing boiled down—and want to see where Sightline’s research is pointing us—here are a couple of takeaway points:
- Economists generally tend to favor carbon taxes on the grounds that taxes are the most economically efficient way to discourage carbon emissions. There are two big downsides, however: taxes guarantee a price for carbon emissions but not a limit, and it’s limiting emissions that’s really the goal. The second big problem is that it’s a tax; and taxes are politically tough, to say the least.
- Industry—particularly big historical emitters—like grandfathered cap and trade because it doesn’t cost them anything to obtain allowances to continue emitting carbon. But passing out credits for free confers fungible commodities (the credits) to polluters—the more pollution, the bigger the payout.
- Sightline’s current preference is for cap and auction. Auctioning the permits gives an advantage to clean industries and utilities, and it helps to ensure that the lowest-cost cuts in emissions are made first.
- One of the biggest questions about any carbon limit is fairness. How do we protect consumers and low-income folks from rising prices? How do we smooth the economic transition away from polluting? A source of revenue—from either taxes or auctioning—can go a long way toward helping out.
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