Moving a Carbon Tax Towards Cap-and-Trade

We've already seen that a cap-and-trade system for carbon emissions is superior to a carbon tax. But it's not an either/or thing. If you want some of the benefits of a tax from a cap-and-trade system, that's easy: just increase the amount of emission rights that you auction, and decrease the amount that you freely allocate.

On the other hand, it's hard to get the benefits of cap-and-trade from a carbon tax, because a carbon tax simply can't implement the main feature of a cap-and-trade system, which is the cap on carbon emissions.

Still, Canadian environmentalist David Suzuki and Liberal Party leader Stephan Dion do have one interesting idea which brings a carbon tax closer to a cap-and-trade system:

Liberal Leader Stephan Dion also rejected the $195 figure as excessive, saying that his party proposes a $20-per-tonne "deposit" instead of a tax.
"It's a deposit that the companies will have to give to the environmental bank -- and they will have this money back if they decrease their emissions," Dion told Question Period co-host Jane Taber.
"It's like when you have your bottle of Coca-Cola and you bring it back to the grocery store. You get your money back. It's not a tax."
Dion called his plan a "great incentive" for Canadians to reduce emissions while not harming the economy.

If you don't like the idea of a carbon tax, maybe this will help bring you around. I'm not sure entirely how the plan is meant to work, but it seems a little bit like the cap-and-trade system in that you can get financial benefits from reducing emissions. That said, it also seems like a cap-and-trade system which is governed not by market mechanisms but rather by a government bureaucracy. And I can't say I'm too excited about that.

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