There’s an ecumenical rift in the carbon policy world. Some favor taxes, while others prefer cap and trade. I’m in the later camp, though I’m sort of a carbon Unitarian: I like carbon taxes too. From a policy perspective, they fit together nicely.
Among the reasons I’m on the c&t side is that taxes can be radioactive, at least in US politics. Now, this isn’t really a substantive objection to carbon taxes as a policy instrument, but the worry seems warranted. Consider how the opponents of climate policy have recently attacked cap and trade: they call it a carbon tax.
Take a look at some headlines:
- Here’s Robert Samuelson in the Washington Post, Newsweek, and elsewhere: “Just Call It ‘Cap-and-Tax’“
- Here’s Michelle Bachman in the Minneapolis paper: “Cap and Trade? More Like Tax and Spend“
- Here’s George Will, just about everywhere: “Cap-and-Trade Is An Unjustified Tax” and “Cap and Trade: A Devious Tax Plan“
Clearly, these pundits believe that taxes are a political poison pill.
Now, before the carbon tax true-believers begin their inquisition, I’ll confess something: cap and trade and carbon taxes are very similar, and in some fundamental ways. Both raise the price of carbon. And both can raise public revenue (though some flavors of cap and trade do not). The principle difference is that taxes have certainty about price, but not about carbon emissions. On the other hand, cap and trade has certainty about carbon emissions, but not about price. Pretty much any economist would agree with this much.
There’s much more to the debate, of course, and there are plenty of substantive reasons to worry about taxes (more on those later, perhaps). But when I see attacks like these, I’m not sure “taxes” per se have much chance politically. That’s just my judgment, of course. But naturally, I’m right.
Laura Vecsey
Eric,Wonder if you might be interested in posting on Examiner.com? Would love to talk. ThanksLaura Vecsey
James
If they want to neutralize this arguments of about it being a “tax”, then they should legitimately make it revenue neutral to the government.They should in some way lower the overall tax burden elsewhere such that the revenue impact on the federal government is neutral. For this to work, it cannot be a gimmick. It has to be a real reduction elsewhere that is comparable to the increase in revenue from the “carbon tax.”
Dan Rosenblum
Eric,James is correct that the making the cap-and-trade program revenue-neutral would neutralize, or at least minimize, the criticism of cap-and-trade being a tax. The cap and dividend approach is far superior to the Lieberman/Warner cap-and-trade proposal.The problem for cap-and-trade advocates is that reality is catching up with them. People are beginning to recognize that cap-and-trade and carbon taxes both raise prices and have a similar impact on consumers. Either approach can be revenue-neutral or can be used as a way to obtain and then distribute revenues. Carbon taxes are far more efficient than cap-and-trade, as recognized by the Congressional Budget Office, can be put in place far more quickly and thus produce emissions reductions much sooner, they’re more transparent and understandable, and they provide a more predictable price signal that will encourage more energy efficiency and substitution of less carbon-intensive fuels. For more information on carbon taxes versus cap-and-trade carbon taxes see the Carbon Tax Center web site.Dan RosenblumCo-Director Carbon Tax Center