When the Carbon Tax and Cap-and-Trade Kiss and Make Up

Ronald Brownstein, in the LA Times, has a long column looking at the question of carbon trading versus cap-and-trade. The link is from Mark Thoma, who says that "many economists will tell you a carbon tax is best"; I'm not sure about that, especially if cap-and-trade emissions are auctioned rather than allocated.

In any case, Brownstein ultimately comes down in favor of (c), all of the above. He likes cap-and-trade; he also likes a carbon tax. This is not as silly as it sounds: cap-and-trade works well for big emitters like energy companies; a carbon tax works well for small emitters such as individuals with cars. My main issue with Brownstein's column is one of omission: he goes into some detail about the logistical difficulties involved in setting up a cap-and-trade system, but never mentions that a carbon-tax system would be at least as hard to operate.

And Brownstein is also alive to just how difficult it is going to be to implement either scheme:

In today's political climate, weighing the relative virtues of a cap and a tax is a little like the Tampa Bay Devil Rays deciding whether they would rather face the Dodgers or the Mets in the World Series. At the moment there's no sign Congress is ready to approve even a cap-and-trade system; the last time the Senate voted on the McCain-Lieberman plan, in 2005, it attracted only 38 votes. And a carbon tax proposal—because it includes that three letter word—is a much more incendiary proposition than a cap-and-trade proposal (which would also raise electricity and gasoline prices, though in a more muffled and indirect way).

I'm a bit more optimistic. I think the political climate is changing fast, as the Republicans increasingly move to where big business stands. Bush is going to do nothing. But his successor, I'm hopeful, will. And I can't agree more with Brownstein's conclusion:

When Washington is ready to act, the real lesson it should take from this brewing debate over the best way to discourage carbon pollution is that there is no best way. Progress against a challenge as vast as global warming will require us to use all the tools available to us: direct regulation (tougher fuel economy standards for cars, requirements on utilities to generate more of their electricity from renewable sources); economic carrots and sticks (a carbon tax that helps fund tax breaks for investment in greater energy efficiency and alternative energy sources); a cap-and-trade system that sets a hard limit on emissions; federal procurement that nurtures clean new technologies; and steps beyond all of these that we can't yet imagine.
"The reality is we are going to spend most of this century trying to figure out how to crank down our global warming emissions," says Dan Becker, the director of the Sierra Club's global warming program. "We are going to need everything we know how to do and probably a whole lot more."