Cap and Trade Versus a Carbon Tax
Here’s a piece on cap and trade. Like every person who hopes that civilization will find its way towards sustainability, I’m rooting for success here. But frankly, I can’t imagine how cap and trade will accomplish its aims, given all the thousands of lawyers and their clients who are profiting mightily by building work-arounds.
If you really think we’re releasing too much carbon into the atmosphere, can’t you just put a tax on it? Force those who generate and consume energy based on fossil fuels to pay for what they’re doing; it’s just that simple. Immediately, people will find that renewable energy isn’t too expensive; they’ll realize that it’s the deal of the century.
But it won’t work if only a handful of countries will subject their industries to the tax. The big elephant in the room is China and right behind China is India. When China and India can see their way clear to tax carbon, the USA will have no problem joining the club. It is beyond foolish to think that we can lead the way and see our economy wither before our eyes wihtout fair treatment of our businesses
. The only way to unilaterally tax carbon is to invoke huge tarrifs on any imports that are not taxed. In essence, the tarrif could be the carbon tax.
If you think a carbon tax has to be simple because it’s a tax, you clearly have not filed your Form 1040 yet this year.
Either Cap’n’Trade or a Carbon Tax might end up overly complex, or relatively simple.
When it comes to the question of “Carbon Tax or Cap and Trade?” my answer is, “Yes, Please.” When and if it looks like we might get some form of carbon pricing, then I’ll worry about how simple and transparent it is.
Craig,
I’d be happy to see any form of pricing of externalities worked into the system; and I agree with Tom that tax vs cap would probably be equally complex.
There is a genuine validity to the statement that the cap-and-trade system would cause less economic disruption while accomplishing the same reduction in emissions. I therefore would prefer that to be the choice. But I’m far more of a believer in credits for emissions abated rather than taxes for emissions achieved.
The issue with either cap-and-trade or carbon taxes is that unilateral penalties will simply make the “playing field” even less level. So we’ll force cleaner and more expensive power here, and we’ll see yet more manufacturing jobs flee to China and SE Asia, where they are using extremely low-cost power fueled by 31% efficiency coal power plants with poor smokestack scrubbing systems.
The alternative would be to credit any installation based on the emissions that are projected to be offset over the first 5 years of operations:
Instead of a carbon tax of $20/ton, have a carbon CREDIT of $30/ton for the first 5 years. Then a new 3 MW wind turbine being erected in Kansas (assume 40% cf with ~12.5% of the potential energy curtailed for a net of 35% cf) might get credited for the abatement of ~39 GWh of coal-sourced electricity over 5 years, and ~7 GWh of natural gas-sourced electricity… for a combined projected carbon abatement of ~43,000 T-CO2, for a total credit of ~$1,290,000.
That same credit could assess a 10 MW solar field in Southern California (~20% cf) and credit that for a projected abatement of ~42 GWh of NG-sourced electricity and ~2 GWh of coal-sourced electricity, again for a total of ~43,000 T-CO2, and a total credit (subsidy) of ~$1.290,000.
That would dramatically push development of renewables – especially as it could easily be scaled down to residential improvements, such as insulation or appliance upgrades, or applied to things such as replacing a cheap NG peaker with a 61% CCGT and uprating the local hydropower dam to serve as balance power. It would work… without just hitting consumers with a blanket higher bill and hitting manufacturers with a much more difficult market imbalance.
Sorry, I was an idiot when calculating that last – sometimes rushed out posts make us seem pretty foolish. The 5 MW solar farm displacing 42 GWh of NG-sourced electricity and 2 GWh of coal-sourced electricity would only abate ~23,000 T-CO2 (really stupid calculation error in above post), which in this theoretical situation here would result in a credit of ~$690,000.