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
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.