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 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.

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