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Carbon Tax V. Cap and Trade: The conversation

20 March 2009

Our climate change debate engendered a lively conversation among readers that pushed the original essays well beyond their starting points. One side advocated a carbon tax (argued by Gregg Easterbrook), while the other side proposed a cap-and-trade plan (argued by Carter Bales and Rick Duke.) Community response provides a nuanced look at the issue, revealing far more facets than our starting points uncovered. In his defense of the carbon tax, for example, Easterbrook makes the case that a tax is simpler and less prone to gaming by lobbyists, legislators, and the market players. Many readers pushed back:

“ . . those arguing that a tax is less likely to be gamed should read our current Byzantine tax code and note the very healthy industry that exists around both lobbying for tax credits and exemptions and then helping people get around the existing code through crazy schemes!” — RogersCQ Weed
“Most proponents of the carbon tax understate the complexity involved in implementing it. The cap-and-trade bills are lengthy and complex because folks have thought long and hard about how to implement [them]. . . . Once proponents of a tax have addressed comprehensively these issues then they might have a basis to say that it’s simpler.” — Julian Turecek
“Simpler is not always better. Simpler is better only when the same goal can be achieved and better results delivered. The first car in the world was not favored by people who were accustomed to [a] carriage simply hauled by horses. And few people understood the advantage of the world’s first computer . . . over the then easily used abacus.” — Vivi Lu

Bales and Duke argued that a cap-and-trade program provides greater price certainty, because long-term abatement levels would be known and the market would quickly price the cost of meeting them. Many readers were skeptical:

“Putting a price on carbon is useless if future carbon prices are uncertain and/or extremely volatile. Unless there is certainty about future carbon prices, critical private-sector investments in low-carbon technologies will be delayed. Europe’s experience makes it abundantly clear that carbon markets will need decades to mature to a point where prices are relatively stable. A weak price signal is a useless price signal.” — William Pentland
“ . . . the market for emission credits or investment projects that cancel emissions will fluctuate with both the level of overall economic performance and the creativity of entrepreneurs to identify viable alternatives.” — Jose Tormo
“It does not make sense to pay for the costs of one externality, carbon emissions, by creating what amount to essentially another externality, the costs of administering and policing a cap-and-trade system.” — Tota Mukherjee

Readers also brought up points that weren’t part of the kick-off debate essays. For example, several readers pointed out that cap and trade was successfully used to reduce acid rain, but disagreed about whether it would work for carbon:

“The US acid rain problem was solved using this mechanism and there is no reason why it wouldn’t work for CO2.” — Mondher Ben-Hamida
“Reducing CO2 emissions is a problem several orders of magnitude bigger than reducing sulphur.” — Bernardo Neri
“Previous C&T programs for other emissions worked due to a controlled technology being available to reduce the emissions and control costs. There is no viable control and sequestration technology for CO2.” — Steve Jackson

Others were doubtful that any plan could be effective that was not global:

“Carbon is a global issue, and as such needs a coordinated global solution. To get 200 plus countries to agree to a common carbon tax that doesn’t change through the next 50 years will be impossible. As such a carbon tax doesn’t meet the need to address a global issue with global solution.” — Oscar J.
“Cap and trade has worldwide support and the emissions problem is a worldwide one-so let’s create a US plan that uses market mechanisms acceptable worldwide and could be synched up with plans of other nations.” — Bill Nieman
“A worldwide agreement (Copenhagen 2009) on which system to adopt will be far more effective than bickering over the “ideal” system.” — Chris Vansnick
“ . . . if the OECD has CO2 costs and China does not, then CO2 regs are just a massive wealth transfer to China. More importantly it will lead to higher CO2 emissions globally as they just shift production from relatively more efficient OECD plants to less efficient Chinese facilities. The argument that the US needs to lead on GHG regs and then the rest of the world will follow is naïve.” — David Gee

The debate was, of course, tempered by today’s economic climate as readers raised the issue of staying competitive in a time of economic strain and evaluated how the alternatives might contribute to innovation in a post-crises economy:

“The pure attraction of a cap is that it sets a target against which emissions performance can be measured and reported annually, and policy settings adjusted, in order to manage down the cap year on year. . . . this will facilitate more coordinated action by business and use the beneficial power of the markets to drive innovation and reward achievement.” — Bill Royce
“Cap and trade gives positive incentives for innovation, taxation gives incentives to minimize taxation liability, not the most effective way to stimulate positive behaviour.” — Terrance Barkan
“Both systems will encourage innovation as both place cost on emissions. A flat tax ensures as far as possible that innovation will be systems based or research based, and not merely sleight of hand.” — Richard
“The carbon tax is an old world, domestic approach to addressing a new world, global problem. Innovation is in order, along with gradually increasing limits on GHG emmissions. Cap and trade gives corporations flexibility in the way they deal with imposed limits, while creating new revenue streams [for] those who aggressively innovate.” — Doug Hoover

Finally, a significant number of respondents disputed the notion that climate change was a problem requiring a major policy fix.

“This world has real problems-nuclear armed North Korea, economic recessions, hunger, crazy terrorists, Vladimir Putin, etc.; let’s not make up problems we don’t have or we can have little impact on.” — John Passyn
“It doesn’t matter what you call it, it’s a tax. When Louisiana decided to implement a lottery, my late brother-in-law likened it to paying your “stupid” tax. When you’re worried about global warming after we just saw a record low temperature of -50F in Vermont, I’d say that’s a pretty good name for it.” — David Sims
“I am amazed at how easily the leadership of this country has given up on the science and is now focusing on costly policy making without a sound basis. The science debate has not been settled. Our climate models have large errors and cannot yet be used as forecasting tools. More work is still required. I refuse to vote on carbon tax or cap and trade at this time. We are not there yet.” — Balvy Bhogal-Mitro
“Climate change has clearly become a political issue, not a scientific one. Never mind the degree of climate change, or even if man is the cause of climate change, we burden our economy with ever greater penalties in pursuit of a poorly understood objective without regard for the cost.” — Paul Kleinen

Clearly there is no consensus around either market-based solution as the landscape continues to shift with the economy. What do you think?

Editor’s Note: Thank you all for your contribution to this conversation. Passions obviously run high on this topic. While we encourage the expression of all points of view, we ask that comments focus on the merits of the arguments.

Please also note, as we prepare to introduce a new debate topic next week, comments on this article were closed on Friday, March 20, at 5 p.m. EDT.

Comment [43]

Agree? Disagree? Let us know what you think. Please include your full name with your comment. Comments may be edited.

I’m coming from the European airline sector, where denial left the building some time ago.

To return to the original debate (is that allowed? Or is thread drift mandatory?), a eax is aimed at manipulating demand. Cap-and-trade is aimed at manipulating supply. Carbon emissions are generated at the supply side, not the demand side. Airline passengers don’t emit CO2, aeroplanes do.

An optimally structured cap-and-trade will always be more efficient than a tax in achieving any given abatement target. What is the target, who are the target-setters and what is their mandate is another matter entirely.

Posted 18 March 2009, 05:35 by David Henderson, Brussels
The evaluation must surely be based on the alternative expected values of the possible outcomes:
If “climate change” – nee Global warming, is found to be the reality, the outcome of doing nothing will be catastrophic, maybe not for us, but for future generations. If we can do something to ameliorate these effects then that probably has a rather large positive value for most of us and future generations we would like to continue living a life worth living on this planet.
If global warming turns out to be not so much of an issue and we do something about it, we might have slowed down the accumulation of “wealth” amongst some individuals or groups, but actual global social utility is unlikely to be much affected overall – the areas of growth will most likely have just been redirected.
The difference between these two outcomes is in the long view will be marginal. If global warming turns out to be the real issue and we did nothing, then we won’t have a long view. In terms of maxmising the expected outcome, we should just get on with working the problem – it might just give us a longer term, and if it didn’t matter then it won’t have done much total harm anyway, and maybe will have prompted some fantastic innovation along the way towards a less carbon dependent and intensive lifestyle.

Those who have been given the power to make a difference need to take the bigger view, and shrug off the vested interests in the status quo, and embrace the exciting possibilities that a different way of life might offer – and which might just offer us all, a future. It is not just about those of us on Capital Hill, Pall Mall, or the Champs Elysee, those with cars, and air-conditioning and water on tap, but about every person on this planet now and in the future – and we don’t have the right to deprive them of their future.

Posted 18 March 2009, 04:45 by Sarah Hayward
If people that believe climate change or global warming is really not happening and is actually interested to find out as many facts as possible please read ‘The weathermakers’ and then come back and argue any point you like and add your counter facts or just opinions. But maybe you just like to live in a cosy ignorant bubble for as long as possible?

Not included in the weatehrmakers is the fact that the reported global cooling was based on incorrect temperature measurements over the Antarctic. This has recently unforuntaley been corrected and actual data shows that the whole panet is indeed warming. How odd you missed this bit of news reporting?

Also, to believe the reason we now speak about climate change ilo global warming is because scientists want’s to keep their bets open is cute. Have you heard of draught or cyclones or the fact that the gulfstream has shut off a few times in the past when the CO2 level was high (but still not as high as today but it doesn’t happen overnight) and caused localised ice age in the northern hemisphere? Sorry if that was a few too many facts for you.

As I started, please read the book and comeback for an educated discussion.

Posted 18 March 2009, 00:43 by Nicklas Lindewald
Condescension notwithstanding, the appeal to the authority of the IPPC and other patently obvious agenda-driven ‘scientific’ organizations and NGOs may be increasingly ignored – as genuine scientists with paleontological and geological training point out that ‘global warming’ and solar-based cyclical trends in ‘cold’ and ‘warm’ periods have been occurring for millions of years! Nary a one SUV or ‘smoke stack’ industry even 500 years ago! And yet even the IPCC appears hesitant to admit to there being a record of cyclical warm and cold periods within recorded history that match or exceed the present trends – whichever way they turn out.

As some of your more astute readers have indicated, the C&T and Carbon Tax schemes have only one thing in common – the effort to con societies and indeed the global business community into yet another scam, designed by politicians for both controlling and revenue purposes. More exactly, as the already billion dollar proselytizing market illustrates, the whole fairy tale about anthropomorphic CO2 generation – as a cause of global warming – is not far removed from Al Capone’s illicit alcohol trading of 80 years ago! The artificial creation of a phony market, organized and enforced by government fiat to bilk the consumer – but in the case of the CO2 scam – to rip off the advanced economies for the benefit of the ‘emerging’ economies, with the modern Capones being the only benficiaries. THAT is what is truly amazing – that so many are delighted to be scammed!

Posted 18 March 2009, 00:30 by T.W. Childs, IV
Given (1) the lack of scientific consensus (I don’t use the word casually) on both the human causality of global warming, and (2) that warming has stopped (at least for the moment) – see 2009 INTERNATIONAL CONFERENCE ON CLIMATE CHANGE – NEW YORK, 10-12 MARCH – and (3) the relatively detailed work that’s been done on the historic lack of correlation between CO2 levels and global temperature, I’m surprised to see McKinsey giving space to climate change spruikers. I thought you believed in evidence, not anthropological curiosity.

Actually, it’s encouraging to see McKinsey is not in thrall to the Great Green PR Machine.

Posted 17 March 2009, 18:19 by Mark Lamberton
It’s been patently obvious for decades that we couldn’t expect to get away with spewing the filth from burning billions of tons of coal into the atmosphere with impunity. So whether the science is leading or trailing just get on with the fix. Neither the arguments nor new technology will present us with a 24/7 base load power generation golden bullet any time soon so why don’t we buy enough time for that to happen with nuclear power generation and fast tracking geothermal. All the current interims are valid exercises but none of them will be deployable in time to make the level of difference required.

Posted 17 March 2009, 17:58 by Ken Oaten
Implementing C&T schemes need not damage our economies. Analysis in Australia for example (an economy heavily reliant on coal-fired electricity production and road transport) showed a cost of less than 1% of GDP. In fact the investment to move to low-carbon economies could drive economic activity and jobs growth – for example in forestry, agricultural sequestration, renewable energy, low-carbon auto industries, public transport, training and education – for decades. It could produce truly sustainable production capacity for future prosperity.

The idea that low-carbon is bad for the economy is one-dimensional, short-term thinking driven more by nostalgia than reality.

Posted 17 March 2009, 17:39 by Andrew Want
Well well, what an interesting situation. Whether you believe it’s man-made, warming or cooling, really makes no difference. The fact of the matter is there IS a climate change taking place. Only an idiot can look at our current whether patterns and think of the changes they have already seen, and claim there is nothing happening here.

20 years ago where I live you could count on about 6 to 8 weeks of what would be recognized as spring/fall like whether. 10 years ago you could count on a month. The last 3 years have seen the trend down to about 2 weeks. Things are changing. Rapidly.

The rapidity with which things are changing tells me the momentum has completely shifted. It’s too late for man to correct what he has done, if this is man-made. If this is not man-made only mankind could possibly be arrogant and foolish enough to delude himself into thinking there is ANYTHING he can do about it.

If it is warming we’d better focus on ways for OUR CHILDREN to adapt to it. If it’s cooling, there will be no global economy, there will be no society as we know it, but I digress. Either way, we need to ADOPT A PLAN (which WILL be changed as we go along to reflect new situational knowledge)rather than just sitting on our hands yelling at one another PRETENDING we’re doing something! We need to grow the balls it takes to ACT rather than sitting around equivocating and waiting for someone else to take action. We already have a CONGRESS!!!

Here’s a completely crazy idea! How about we start worrying about what’s really important to us. Will your Great-grandchildren really care what your expenses were in this day when there is no arable land to grow food on? Whether it’s due to desertification or a mile thick ice sheet will make NO difference to them, but if we start looking for ways to deal and adapt, it may.

Here’s what it comes down to. If global warming (climate change for you PC junkies) is real it’s too late to stop and no Carbon Tax OR C&T plan will make a difference. If it’s not real we’re chasing our tails. Either way the politicians are going to try to bilk every penny they can from all of us while obfuscating and protracting the arguments as long as possible, to keep us as confused as possible as long as possible and use that to collect as much of our wealth as possible. What is needed is action.

Posted 17 March 2009, 17:21 by Steve Rutherford
Your debate on a tax versus cap and trade misses the point, because you are assuming that global warming is a genuine problem. There a very reputable experts, which strongly disagree with this assumption. It seems strange to me that our government is ready to make law, assess a tax, or interrupt the normal flow of industry and the economy based upon what is a purely political and biased agenda.

Posted 17 March 2009, 16:14 by Bob Fick
Global warming does not exist. The globe has been cooling for the past 10 years. Prior to that, it was warming. From the 1940’s to the 1970’s, there was a cooling. In fact, Time Magazine worried about “a new Ice Age” in the early 1970’s.

Global warming is a scheme concocted by politicians and NGO’s who hope to profit by increasing taxes and decreasing economic wealth, particularly in industrialized nations.

Note that those “fighting global warming” have changed tactics. Rather than “global warming,” they now refer to “climate change.” This presumes that ANY change in climate can be attributed back to man’s not caring for the environment.

Note also that any proposed solutions, no matter how drastic, have little or no impact on our climate.

I continue to be amazed by the public’s gullibility, particularly in Europe, to global warming. I am equally amazed and impressed by the large number of NGO’s which have gained money, prestige and political power by embracing the chants against global climate change.

We will look back from our (freezing) perspective in 50 years and shake our heads in bewilderment that so many people were fooled for such a long period of time.

Posted 17 March 2009, 14:48 by John Lonergan

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