Carbon: To Tax Or Trade?

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Turns out I'm not the only one to notice that in the debate over the best mechanism to combat global warming, the pols seem to prefer cap-and-trade systems to a carbon tax. (Among the Democrats pitching greenhouse gas abatement strategies, Biden, Clinton, Edwards, Obama, and Richardson all propose cap-and-trade systems, while only Dodd backs a tax -- in addition to a trading scheme.) Last Friday, the New York Times website published an article by economics reporter Tom Redburn on the very topic. Redburn doesn't come to a conclusion about which system is better, but he does raise a couple of interesting points. First, he marshals a quote by a trio of economists from the conservative American Enterprise Institute: "Most economists believe a carbon tax (a tax on the quantity of CO2 emitted when using energy) would be a superior policy alternative to an emissions-trading regime. In fact, the irony is that there is a broad consensus in favor of a carbon tax everywhere but on Capitol Hill, where the 'T' word is anathema." (That's hardly the only irony: there's also the fact that AEI now supports a government remedy to climate change to begin with, and an acknowledged tax at that.)

But it's not simply that "tax" is such a difficult word to pronounce in Washington. According to some environmentalists, the only way the public will accept such a radical restructuring of the energy economy is with "a guarantee that emissions will fall." " You have to set the reductions in stone," Redburn quotes an economist from Environmental Defense as saying. "Bottom line, cap-and-trade is the most environmentally sound approach and it's the only politically viable approach."

I'm not sure I buy that -- there's more to this story. I'll return to it once I figure it out.