How Best to Minimize Carbon Emissions

Brad DeLong is very impressed with the LA Times's editorial on carbon taxes yesterday. Frankly, I am, too, although I disagree with it. It's clearly the day for such things: Larry Summers has an article on the same subject in the FT today, and John Kay is weighing in as well.

(Update: If you only read one article on this subject, it should be Ronald Bailey's, at reason.com. It's very good, and by far the most compelling argument in favor of a carbon tax over cap-and-trade.)

But it's the LA Times which deserves the most attention, because it really makes a concerted effort to get to the bottom of the debate between carbon taxes and a cap-and-trade system. It does so reasonably honestly, as well, although I'm disappointed that it never once mentions the fact that emissions quotas could be auctioned under a cap-and-trade system, thereby generating government revenues.

Still, it's worth pointing out where the LA Times goes wrong. For instance, the newspaper says that a carbon tax is "straightforward and much harder to manipulate by special interests than the politicized process of allocating carbon credits". But a moment's thought shows that this doesn't make a lot of sense. A carbon tax is levied on carbon emissions, while the process of allocating carbon credits is based on... carbon emissions. The government has to measure carbon emissions either way: one can't be much more straightforward than the other.

The LA Times also buys uncritically the assertion that energy prices will be more volatile under a cap-and-trade system. Which is a little ironic, given how volatile energy prices in California have been without a cap-and-trade system. The fact is that the main ingredient of energy-price volatility is the underlying price of energy. The cost of emissions credits or carbon taxes simply gets added on top; it doesn't add to volatility very much.

Meanwhile, the LA Times also fails to note that there are no guarantees whatsoever that a carbon tax would result in the kind of reductions in carbon emissions that the world needs. In order to cap carbon emissions at a certain level, it makes sense to, well, cap emissions, rather than simply making them more expensive.

On the other hand, Larry Summers is quite right that some carbon taxes make sense; a gasoline tax, especially. And he's definitely right that the world must make a concerted effort to abolish energy subsidies.

The fact is that no one approach will be sufficient, as John Kay implies. We need a cap-and-trade system and a carbon tax for the areas not covered by cap-and-trade. We need to spend money on research into new technologies and we need to better implement the ones that already exist. We need to be much keener on energy efficiency and we need to have some faith that future solutions to the problem will arise which we can't even imagine at present.

The LA Times says that if carbon levels double from their pre-industrial state, "the damage may be irreversible". Well, they're half right. No matter what happens, there will be damage, and it will be irreversible. Our job now is simply to minimize the adverse effects.