Komanoff of the Carbon Tax Center does his very best to plead the case for
a carbon tax against environmentalists at Environmental
Defense who favor the superior cap-and-trade approach. I’m not going to
myself here on the subject of why the cap-and-trade system is superior.
But I would like to try to move the debate on a bit, by asking a few questions
Question One, about this:
To make [the] transition requires a pricing mechanism that’s simple,
transparent, and equitable. A straightforward, ecumenical carbon tax meets
that standard; devilishly complex cap-and-trade does not.
Can you please explain how a carbon tax would be simple, transparent, or equitable,
compared to a cap-and-trade system? The main complexities of both, it seems
to me, center on the question of accurately measuring carbon emissions. Why
is that less of an issue with the tax? You say that a carbon tax "would
resist gaming" and would be "much less vulnerable to evasion".
Can you explain why that might be?
Question Two: You say that under a carbon tax, revenues "could be dedicated
to public purposes," while under a cap-and-trade system, "dollars
flow to market participants". But isn’t that the whole point? Under a cap-and-trade
system, market participants who radically reduce their carbon emissions get
generously rewarded for their inventiveness. Under a carbon tax, revenues will
get hidden in the public fisc, where they can be much less of an incentive to
emissions reductions. Surely the market knows better than the government how
best to spend money to reduce emissions — wasn’t that proved by the market
in sulfur trading?
Question Three: You say that a carbon tax would provide certainty about energy
prices. Energy prices aren’t certain now, with no tax; why should they be certain
when there is a tax? And why would energy prices be more volatile under a cap-and-trade
system? I understand that the market in emissions rights might be volatile,
but once an emitter has bought a certain number of rights, his prices are just
as certain as if he was paying a tax, no?
Update: Charles Komanoff answers.