Eric’s take on Jim Hansen’s opposition to cap and trade, below, is exactly right. Hansen is a renowned NASA climate scientist. But on climate policy, he’s just lost in space.
Now, I’m not going to call Hansen’s support for carbon taxes misguided. Remember, we LIKE carbon taxes. We’ve given BC’s pathbreaking carbon tax lots of sloppy wet kisses over the years.
Instead, what’s misguided is Hansen’s belief that cap and trade is fundamentally different from carbon taxes. That’s just wrong. As Paul Krugman points out, carbon taxes and cap-and-trade are like two peas in a pod. The both put a price on carbon, driving down emissions throughout the economy. They both can be structured well, or structured poorly—the devil’s in the details. They two can even play nice together—as we argue here, you can have a carbon tax and a cap-and-trade system operating in the same economy, with no weird side effects.
There is, however, one key way in which cap and trade and carbon taxes differ: the role of the market.
- With cap and trade, the government decides how much carbon the economy will emit—and the market decides the price of carbon.
- With carbon taxes, the government decides the price of carbon—and the market decides how much to emit!
That’s right: carbon taxes let market forces determine how much our society contributes to global warming. In theory, the market could let emissions rise for years under a carbon tax regime. It all depends on how steep the tax is, on how expensive fossil fuels are, and on how quickly the national demand for fuels rises.
So all the folks out there who are afraid that cap and trade cedes too much control to the marketplace have things exactly backwards. Carbon taxes cede the most important climate decision — how much carbon we’ll emit—to the blind, impersonal will of the market. I, for one, am more than a touch nervous about a policy that fixes carbon prices, and lets emissions float. I’d much prefer to try to pin down emissions, and let prices float a bit.
Regardless, the question of where to focus the uncertainty—in emissions, or in prices—is what’s actually at stake in the tax-vs-cap debate. And It’s a fairly straightforward choice; this ain’t rocket science, folks.