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It’s simple. It’s easy to enforce. And it provides the right incentives to polluters as well as inventors and engineers working to develop cleaner technologies. -
A cap and trade policy gives business greater certainty about future costs. It also puts a limit on emissions and is more likely to result in a real reduction in greenhouse gases.
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Ed. note: Our climate change debate engendered a lively conversation among readers that pushed the original essays well beyond their starting points.
Gregg Easterbrook
Why we need a carbon tax
It’s a three-letter word that starts with “t,” ends with “x.” Go ahead, don’t be afraid to say the word—“tax.” The simplest, most efficacious, least bureaucratic, and best-for-the-nation initial move against greenhouse gas buildup would be a carbon tax.
This is not a liberal nostrum. Economist Martin Feldstein, once President Ronald Reagan’s chief economic advisor, has been advocating a carbon tax for nearly 20 years. In 2007 N. Gregory Mankiw, former chief economic adviser to President George W. Bush, threw his weight behind the idea, saying that a carbon tax “may be the closest thing to a free lunch that economics has to offer.” Here are the main arguments for a carbon tax:
- Such a system would be far less complex than any cap-and-trade scheme. The McCain-Lieberman greenhouse gas cap-and-trade proposal, which drew 43 votes in the Senate in 2005, was 491 sections long. And that was just the authorizing legislation, not the tens of thousands of pages of administrative orders required to put the bill into force! The Obama plan is likely to be equally complex by the time it wends its way through Congress.
- Because carbon cap-and-trade systems are inherently super-complex, they are nearly certain to be “gamed“—defeated by gimmicks, litigation, and special-favors lobbying. Lawyers will always think of pretexts faster than regulators can repair flaws in the language of complex regulation. America’s approach to environmental regulation is already too steeped in litigation. A carbon cap-and-trade system would make this problem worse.
- Whatever you tax, you get less of. Today America mainly taxes labor and capital—but we want more of both! We don’t want more carbon, so let’s tax that instead.
- Owing to simplicity, enforcing a broad-based carbon tax is imaginable. Enforcing a broad-based carbon cap-and-trade scheme is hard to imagine.
- If carbon is taxed, individuals—not government—will make the decisions about greenhouse-gas reduction strategies. Individuals have a much better track record at economic decision-making than government does.
- Carbon taxes will offer a clear, easy-to-understand profit incentive to those who devise carbon-reduction technology—so inventors and engineers will get to work. Conversely, cap-and-trade programs will offer an incentive to game the system; so pollsters and lobbyists will get to work.
- The only policy failure concern about a carbon tax is that individuals and firms will simply pay the tax rather than reduce emissions. This is possible, but unlikely: experience shows that individuals and firms change behavior to reduce taxation.
But isn’t it totally and utterly politically impossible to enact a tax? Perhaps in the 1990s, when the federal budget was in surplus. Today the federal government is on the worst borrowing binge in its history—the national debt has doubled in a decade! Voters are not fools; they know little twinkling fairies will not come in the night to replace all the borrowed money. Debt must be repaid, and a carbon tax, which would create net benefits to society, may look a lot better to voters than other possibilities.
Carter F. Bales and Richard D. Duke
Carbon caps are better
There are two main contenders for constraining carbon emissions: caps and taxes. Both are market-based approaches that put a price on carbon and other greenhouse gases and provide an economy-wide signal to encourage emission reductions, beginning with the lowest-cost opportunities.
The main difference between the two is that a pure tax fixes the price of carbon (but allows the amount of carbon emissions to vary) while a pure cap places limits on carbon emissions (letting the market price of tradable carbon allowances vary). We argue that a well-designed cap with certain tax-like features is the most efficient strategy to radically reduce emissions. This approach has four advantages.
First, a well-designed cap offers superior investor certainty relative to a tax because it establishes clear, long-term abatement requirements and allows the private sector to estimate the allowance prices needed to get the job done. In contrast, a carbon tax would likely start too low given political pressures and it would be exposed to unpredictable adjustments, as politicians would tend to raise or lower the tax in reaction to economic conditions. A well-designed cap should also include specific tax-like provisions.1 Most important, the government should purchase and delete allowances if the price falls below a gradually rising floor.
Second, a cap on carbon provides more fundamental environmental certainty than a tax, because it is, by definition, a fixed limit on emissions and because the political process to define a cap is less likely to result in emissions loopholes. In particular, the political horse trading involved in defining a cap centers on distributing a fixed number of allowances—with equity and economic productivity implications but with no impact on future emissions levels. In contrast, negotiations to define a carbon tax might result in exemptions for certain sectors, which would allow higher emissions levels.
Third, once carbon caps are in place, all energy consumers share an interest in promoting complementary policies that reduce emissions. For example, all energy consumers will benefit from lower carbon allowance prices if they persuade policymakers to enact and enforce minimum energy efficiency standards for buildings, appliances, and vehicles.
Fourth, carbon caps provide a useful economic shock absorber, since allowance prices automatically soften as soon as the economy enters a recession. In principal, carbon taxes could also be adjusted frequently to make them more countercyclical, but to do this effectively would require an unlikely level of sophistication, objectivity, and alacrity on the part of policymakers.
Experience from the US cap-and-trade system for controlling the sulfur emissions that cause acid rain suggests that a well-designed approach can yield unanticipated cost-reducing innovations. If we do not take action immediately, greenhouse gas abatement costs will rise sharply.
1 See us-cap.org to download the Blueprint for Legislative Action, issued in January 2009 by 25 major corporations and 5 NGOs.
07 May 2010 · 08:42:14 PM GMT
The arguments against implementing or leveraging successful business practices are so short-sighted they’re hardly worth reading anymore. Anyone who operates a social enterprise and refuses to consider ways to be more successful purely for...—Jeff Hancock
In response to Should social entrepreneurs adopt the language and practices of business?
01 May 2010 · 04:38:37 AM GMT
The false dichotomy of business-model versus a social-impact model is a vestige of a dying world. As an entrepreneur turned social entrepreneur, I think Bukner is describing all entrepreneurs, not just social ones when he says “Real…...—theGeoffDavis
In response to Should social entrepreneurs adopt the language and practices of business?
30 Apr 2010 · 03:01:47 AM GMT
‘passionate social entrepreneurs’ are a figment of the romantic imagination. also the ‘poor’ are not a separate species. most humans want the same things: a full belly; security, education and medical support for the family. d...—vikram sundarji
In response to Should social entrepreneurs adopt the language and practices of business?
27 Apr 2010 · 05:12:22 PM GMT
Yes, where appropriate just as some businesses are adopting language and practices from social entrepreneurs. It is an evolving path so there will be stumbles on all sides. Yet in this ever more connected world, savvy people who want to st...—Kare Anderson
In response to Should social entrepreneurs adopt the language and practices of business?
24 Apr 2010 · 02:53:45 AM GMT
Should social entrepreneurs adopt the language and practices of business?Social entrepreneurism and the word ‘business’ have very different connotations. Where one is viewed in the light of service to the society regardless of whether it ...—Savita Rao
In response to Should social entrepreneurs adopt the language and practices of business?
24 Apr 2010 · 02:12:45 AM GMT
To me it appears that the debate would benefit by moving away from the tyranny of “or” and move towards the benefits of “and”. The question is not about business management practices vs the passion of social entrepreneurship. ...—Durga Prasad Duvvuri
In response to Should social entrepreneurs adopt the language and practices of business?
- Acumen Fund
- Change.org
- Changemakers
- David Bornstein Stories of Change
- Draper Richards Foundation
- McKinsey Learning for Social Impact
- McKinsey Social Sector Office
- The Schwab Foundation for Social Entrepreneurship
- Social Impact Exchange
- Social ROI
- Social Venture Network
- Stanford Social Innovation Review
- The University Network for Social Entrepreneurship
One difference between cap and trade for Sulfur Dioxide and Greenhouse Gases is that there are relatively few large sources of SO2 emissions compared to many small GHG emissions. The vast number of GHG emission sources requires a far more complex system to capture a significant fraction of the emissions. Covering too few sources would make the program meaningless. Covering the appropriate number of sources would result in a huge unsustainable and complex program. The carbon tax solution is far easier to implement because the tax could be applied at the source (ie, refineries, coal mine, etc.). This would make a carbon tax less susceptible to gaming the system and ultimately fairer to everyone.
Posted 5 March 2009, 00:22 by Allan Sandosham
Carbon tax WITH cap – no trade – that would only water down the whole process, complicating it unnecessarily.
Posted 4 March 2009, 23:54 by Ingrid Wild Kleckner
The Either/Or debate could be replaced with the Genious of And, similar to what was posted 3 March 2009, 17:32 by bernardo neri. GHG suppression is a global issue, with trade in goods WTO characteristics that must be subject to disciplines, such as GHG quotas and exports tariffs. Why reinvent the wheel?
The WTO could be entrusted as a single agency with the power to enable multilateral binding energy-environmental discipline, as it is done for trade of goods. Since all BRIC countries are WTO members, this is an ideal venue for GHG emissions reduction.
Instead of emissions trading, the tax will be similar to goods “tariff” schedules on exports of GHG that will be negotiated together with minimum quotas. I have suggested earlier that this should be done at the current Doha Round.
The case for WTO disciplines has already been studied earlier, I recall around the year 2000 in the energy and environment task forces of the WTO. In fact, there is an important unfair competition issue involved (related to “including energy embedded in products”), making GHG suppression a trade issue amenable to binding agreements in use.
Posted 4 March 2009, 20:06 by José Antonio Vanderhorst-Silverio, Ph.D.
How about neither?
Both systems imply that in order to produce, in order to survive and make a livelihood, a fee must be paid.
If either side’s goal is to reduce pollution, I recommend allowing business to thrive, unhindered by seemingly well-intentioned nooses. Innovation and invention are the only things that can truly get rid of pollution, and neither of those concepts can be fully realized if people with too much time on their hands cannot resist the temptation to “do something” (i.e. choke the people for their own good).
What happened to the free-market economists upon whose principles and methodologies the greatest country in the history of the world was built?
And please don’t say capitalism has failed. We have not seen it in some time.
Posted 4 March 2009, 19:47 by Democratic Businessman
The problem with a carbon tax is that it gives no support to cheaper ways to reduce greenhouse gas. Biochar can sequester carbon in the ground very inexpensively while increasing agricultural productivity. With carbon trading this can be encouraged. Please read www.clrlight.org/biochar.htm for more details.
Posted 4 March 2009, 17:50 by Thomas Blakeslee
Ummm… How about NEITHER…
Carbon is not the enemy of the planet, and most credible scientists agree. Watch the Great Global Warming Swindle by the BBC on youtube. I’m pro “Green” and being good for the planet, but OMG how stupid are we to think that Carbon is the enemy and that a global tax (yes, another tax, lol) will save the earth…
It’s only good for the banks, not the planet! Wake up!
Posted 4 March 2009, 16:13 by Tom
My stand is on C&T, as it sets clearer goal to achieve and it encourages cooperation to develop carbon emission control technologies to solve the problem fundamentally. C&T sounds more sophisticated than Taxing, but could be more effective substantially.
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 carriage simply hauled by horses. And few people understood the advantage of the world’s first computer (which was incredibly huge) over the then easily used abacus either. But in current world, we all live a high speed life, and cars/computers have also evolved into simple forms from the original “complex” form— that’s where we want to target at, but not what the originally simpler horse or abacus could achieve.
Similar story here for Carbon tax and C&T. Apparently, carbon tax is not a simpler form of C&T, but likely a simple “horse” or “abacus” that public have easily experienced in life. C&T is more sophisticated to be implemented because carbon emission control itself is complex both technically and politically. It takes time and interactive effort at macro-level to mitigate the emission level. We can’t, just because C&T is sophisticated now, first turn to a “horse” or an “abacus” which is easily understood but can not solve the problem fundamentally and in the long term.
To solve the problem, we first need be clear about the goal. The GHG emission control has become so hot a topic now. We all say— to reduce the carbon emission. But, at what level year by year? Not being certain about that, where do we want to go and how? Taxing can not tell, but say – to generate incentive at individual level, assuming individuals know how or will be forced to know how to decrease carbon emission so that they can be less taxed. In fact, even professionals engaging in carbon emission control research have not come up with an efficient technical solution. Nor to say the mass public who is less educated on how it could be controlled technically. People get the incentive, doesn’t mean that by having the incentive they have the ability to do the work. In addition, it is even unclear about how big and effective the incentive could be for the goal by taxing carbon at individual level. As someone said earlier—people get more creative to avoid taxes (not necessarily via carbon control technology advancement) especially when they need more of the taxed item.
In the long run and from the ground up, the technical breakthrough is the key to solve the problem. Everyone would agree on this. Technical breakthrough can’t be achieved by relying on individual levels, but by cooperation of all businesses that generate point sources of GHG. Research is going on, it takes time. However, setting clear goals step by step would be viable short term solutions towards the long term goal. C&T can do the job in this regard, clearly setting the cap and allowing the credit allocation as needed – this helps to mitigate emission gradually at controlled level as well as to ensure necessary production level. Those businesses that pay much for carbon trade would be highly motivated to drive the control technology development to lower its cost disadvantage. On the other side, who have advanced in carbon emission control would benefit from both their cost savings in carbon trade or promotion of their control technologies to the industry. It would also make more sense to me that “cap” level is set according to a few types of point sources of GHG rather than one cap for all, so that C&T can be implemented on a fair basis. The cap should also be refined or become more restrict along with technical development of the emission control programs.
My two cents…
Posted 4 March 2009, 14:48 by Vivi Lu
Unfortunately, there is a solid scientific consensus about the causes of global warming and where it is heading. If anything, the projections are getting worse not better – perhaps the initial projections tended to be on the conservative side for broader public acceptance of the issue.
Here is a link to the latest MIT study upping their global warming projections.
http://voices.washingtonpost.com/capitalweathergang/2009/02/new_research_from_mit_scientis.html
Global warming is a complex issue and finding a proof here is not like conducting a controlled experiment and finding a definitive cause and effect relationship everybody can agree on. It is more like social experiment we live daily, and to me the statistics we see is evidence enough to make me stop doubting what is going on.
I would love to see evidence that global warming is not happening, but I am not holding my breath. And, btw., I also do believe that global climatic changes will worsen many things including tensions among cultures, so yes, nuclear proliferation needs to stop before somebody gets desperate enough to use the nukes. Global poverty and hunger are other issues that will get worse with the climate shifts if they are not moderated.
Fortunately, by now, for the majority of people the question is not whether there is something like global warming, but rather what is the best way to do something about it (that is why this debate is great). And there is no doubt in my mind that it will have to be us, the Western civilization leading the way here. I am personally prepared to pay for it (and for what my ancestors did to lead us here) because I feel the urgency for my 8 month old to not having to start from scratch cleaning up the mess we have chosen to ignore. So cap me – it is fine by me.
Posted 4 March 2009, 14:11 by Rasto Ivanic
540 million years ago CO2 was 7000ppm (when land animals appeared).
170 million years ago CO2 was 1700ppm (when dinosaurs roamed the Earth)
250 years ago CO2 was 250ppm (after Little Ice Age)
currently, because of man, CO2 is 385ppm.
Plant life dies at 150-180ppm through asphyxiation.
CO2 is a finite resource. Nature has been sequestering it underground for 540 million years. At the rate of decrease over the last 170 million years, Earth would have hit 150ppm in about 10 million years. Odd as it may seem, man had inadvertently increased the life essential CO2 concentrations, and if we were to disappear today, the added CO2 probably adds another 10 million years to plant life on Earth. However, man is clever, and may find a way to bury CO2 and make it unavailable to nature at an accelerated rate. Thus, we may yet find a way to kill off most of the planet’s plant life, thus ending the 3rd atmosphere.
Meanwhile the Obama Administration and most of the press focus on the wrong components.
N2O, which has no carbon, is 296 times worse than CO2, and 3% of fertilizer for corn to make ethanol is emitted into the air as N2O. Will that be regulated? And if so, will the cost of food soar?
CH4 (methane) is emitted from rotting wood and is 22X worse than CO2. Will that be regulated? Termites create considerable methane, how will we regulate that? And will methane receive equal penalties for unequal effect?
H2 (hydrogen) in the atmosphere combines with hydroxyls (-OH) and removes OH from the air. Hydroxyls normally combine with free methane to remove it. A hydrogen economy may actually increase the longevity of methane in the air, thus increasing Global Warming Gas effect. Will the EPA control that?
Burning wood reduces the amount of methane released but increases CO2 over letting it rot which releases much more methane and less CO2. Methane oxidizes in about 9 years to CO2. Will the EPA promote burning scrap wood as a means of decreasing the overall GW effect?
The current policy doesn’t actually use science in its decision making. What is at stake is that if the government controls CARBON it controls LIFE.
I grow trees. Agricultural growth rate has increased 30+% because of the increase of CO2 in the past 250 years. It is projected to increase further with any continued rise of CO2. What is the political end game? Are ecopoliticians trying to reduce CO2 to preindustrial 250ppm? Do you realize that we would lose the 30% agricultural gain and thus cause massive STARVATION across the planet. And do you know what happens when global concentrations drop to about 150ppm? Most life on Earth DIES. Is this what you want to promote?
Posted 4 March 2009, 13:58 by Randy Dutton
I prefer “Carbon Caps” because the essential point is that how to really reduce the affect caused by the carbon. Inducing tax still make the door open to those manufactures to release as much as carbon-dioxide they want. Thanks to tax, some may reduce their release, however, some might be made to turn to those extreme ways to make profit in order to pay tax, causing a negative circulation in the whole industrial envrionment.
Posted 4 March 2009, 13:21 by Keon C GUO