A quibble (0.00 / 0)

Cap and trade is a 'market' based solution, and so it's the one being pushed by a broad range of industry groups and DC greens.

A carbon tax is just as much of a market based solution; the reasons for pushing cap-and-trade are more based on a  combination of perceived political feasibility (from the green side) and, as you note, ability to make a profit from the industry side.

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by: BP @ Thu Dec 11, 2008 at 23:13:10 PM UTC

Not fundamentally flawed (4.00 / 1)

Unless you're a strong believer in public choice theory, the European system doesn't necessarily have to be a fiasco.   Matt rightly points out a problem with its implementation, but as someone who was just recently studying European economic policy in London, it was acutely apparent to me that permits have to represent a credible reduction, and cannot be free, in order for the system to work.  

If there are no real reductions and the permits are free, market forces are severely compromised because there is little demand and a vast quantity of supply.  This is a perfect example of how people who claim to be free market and pro-business actually aren't - in this case, the EU just gets overwhelmed by these various special interests. If the EU had structured the system differently to actually promote a free, equilibrium market, green businesses would have been rewarded, the government would make money on the sale of the permits, and the public would benefit from those revenues and pollution reduction.  

Instead, they basically just put together a massive giveaway to polluters, due to lobbying.  That's not an economic flaw to a cap and trade model, but a political shortcoming.  If we, or the Europeans, approached the situation with some vigor, determination, and resistance to industry groups, the system could be vastly improved for all parties (except maybe the biggest polluters, but it also creates incentives for reduction, unlike the current methods).   Given a lot of the theoretical, political and practical questions of a carbon tax, that seems like an easy, immediate and effective fix.

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by: expatriatedjerseyan @ Thu Dec 11, 2008 at 23:24:21 PM UTC

McCaskill is not especially (4.00 / 1)

knowledgeable.

There is no "clean coal" technology to switch to, so the cost is zero.  

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by: Tom Wells @ Thu Dec 11, 2008 at 23:32:29 PM UTC

Cap and trade (0.00 / 0)

I have long been skeptical of cap and trade, first because of the difficulty of implementing it, and second because it seems much more prone to manipulation by lobbyists than a carbon tax. Economically, of course, cap and trade (with a full permit auction) and a tax are equivalent, but the cap-and-trade scheme is much easier to screw up. Nevertheless, most green types seem to think cap and trade is politically easier to sell; I've tended to take their word for that, so I'm fine with cap and trade.

Still, I think simplicity is a virtue, and if I were king I would put in a carbon tax and use the proceeds to fund a reduction in payroll taxes.

McCaskill is wrong that action on carbon (whether via a carbon tax or cap-and-trade) should wait until the financial crisis is behind us; it's unrelated, as far as I can tell, since any tax increase related to carbon can easily be offset with tax cuts elsewhere to make it revenue neutral, so there's no reason to think such action would be contractionary.

However, McCaskill's point about coal (leaving aside the "clean coal" nonsense) is a salient one. Around the country, some people get electricity from coal, while others get it from natural gas, nuclear, or hydro. Those people in regions of the country (like Missouri) who use a lot of coal are going to be much more affected by efforts to reduce carbon than people (like me) who live in states (like California) where electricity comes from less carbon-intensive sources. The same applies to city-dwellers vs. rural people. I don't know what can be done (or even if something should be done) to try to mitigate the unequal distribution of these impacts.

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by: dbeach @ Fri Dec 12, 2008 at 00:10:02 AM UTC

article (0.00 / 0)

Here's a good article Matt wrote a while ago on mydd that goes into greater depth on the shortcomings of cap'n'trade:

http://www.mydd.com/story/2007...

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by: md @ Fri Dec 12, 2008 at 00:14:32 AM UTC

Europe's approach to climate change (0.00 / 0)

I'm very glad you made this point, Matt, because I think a certain number of progressive Americans look to Europe as a model for addressing climate change.  This is understandable: while the U.S. government under Bush and the Republicans was in complete denial over global warming, the rest of the world's rich countries started implementing the Kyoto Protocol.  But that was 2002, and since then their results haven't been all that great.  Obama promised during the campaign to implement a cap-and-trade system, and I don't doubt that he'll follow through.  But battles will be fought over how stringent the emissions cuts should be, and plenty of corporations and lobbyists will be putting heavy pressure on lawmakers to make the rules as lenient as possible.  Progressives will need to be there to push back.

Discussing other approaches--a carbon tax, massive subsidies to make renewable energy cheaper than coal/natural gas/nuclear--is always a good idea, and none of these possible solutions are mutually exclusive.  But I tend to think that because trading carbon credits has already been implemented and seems to have the most establishment support, there will be the least resistance to putting it in place in America.  Whether the policy has any teeth or not is another problem entirely, and one that we'll need to focus on in the near future.

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by: Eurotrash @ Fri Dec 12, 2008 at 00:21:19 AM UTC