Carbon Taxes vs Cap-and-Trade in the WSJ

Deborah Solomon today has a

good primer on one of my pet subjects, carbon taxes vs cap-and-trade. She

says that it’s "the biggest political battle in Washington over climate

change," however, which is over-egging the pudding a lot: the economists

who support a carbon tax would, I’m sure, be perfectly fine with an cap-and-trade

system which auctioned rather than allotted carbon-emission rights. And in any

case, no one in Washington is seriously proposing a carbon tax as opposed to

a cap-and-trade system in the first place.

Naturally, as a cap-and-trade partisan, I think that Solomon is too nice to

the carbon-tax crowd.

Both cap and trade and a carbon tax attempt to use market incentives to get

businesses and consumers to reduce emissions of carbon dioxide, which is a

gas produced by burning fossil fuels and, according to scientists, is a contributor

to global warming.

Imposing a tax or fee on each ton of carbon emitted would encourage technologies

that produce less carbon, advocates say. It would raise the price to consumers

of activities that burn carbon, such as driving. "If there’s an iron

law in economics, it’s that if you raise the price, you lower demand. And

so if you raise the price of burning fuels, you’ll lower demand for them,"

says Mr. Green."

First, and most important, a cap-and-trade system does not rely on "market

incentives" to reduce carbon emissions. It uses hard regulation: it caps

carbon emissions at a certain level, and the market just has to deal. It’s the

carbon tax, not cap-and-trade, which has to rely on that "iron law in economics"

which predicts that demand for carbon will fall if the price rises. (By the

way, "Mr Green" is Kenneth Green, of the AEI, an avowed carbon-tax

advocate.)

But I also need to tweak Solomon for the utterly unnecessary "according

to scientists" which she felt compelled to add into the first sentence.

Carbon dioxide is a contributor to global warming. That is a fact. Qualifying

it with reference to anonymous "scientists" merely makes it seem more

contentious than it is.