You want an argument for why a cap-and-trade system makes more sense than a carbon tax if you want to reduce carbon emissions? Take a look at all the noise surrounding the Bush speech on the subject today. Bush’s goal, of stopping growth in US carbon emissions by 2025, is incredibly weak. If that goal were legislated by means of a cap-and-trade system, the open-market cost of emitting carbon would be very close to zero. And yet such a system won’t be proposed:
One person briefed on White House deliberations said a cap-and-trade program for electric utilities was dropped from the package yesterday, after the White House was flooded with complaints from industry officials and lobbyists.
What did the industry dislike? Simple: Once you’ve set up a cap-and-trade system with any cap at all, even the most unambitious, then at that point the cap can be changed. That is, of course, the key advantage of a cap-and-trade system: if it becomes obvious that emissions need to be reduced further, it’s relatively easy to do so. On the other hand, given the political difficulty of getting any kind of tax hike through Congress, a carbon tax is much harder to tweak or to raise.
And so Bush’s proposal is likely to be little more than yet another "strategy for a way forward" rather than anything substantive. That, too, is OK, in its way. If the Bush administration waffles and does nothing, then the door is wide open for the next president to implement a properly-thought-out cap-and-trade system, which is something all three remaining candidates support.