A great piece by Krugman today (no, seriously) - Unhelpful Hansen. One thing I do not understand is this:
For here's the way it is: we have a real chance of getting a serious cap and trade program in place within a year or two. We have no chance of getting a carbon tax for the foreseeable future.
Why is there no chance of getting a carbon tax enacted? I hear this asserted all the time without explanation. British Columbia recently enacted a carbon tax. If B.C. can do it, why not America? It is not as if carbon taxes are new things - Canadian provinces have had carbon taxes since the 1920s. When Alberta enacted their first gas tax, the Yankees had yet to win a World Series! It is not as if this is a radical new proposal.
Krugman does a terrific job in describing the ways a carbon tax is similar to cap-and-trade - but there are two important differences if the cap-and-trade permits are not auctioned off:
- The revenue generated from a carbon tax can be used to reduce other taxes. If the carbon tax is less damaging to the economy than the tax it replaces (say, the corporate income tax for small and medium size enterprises), there is a net benefit to the economy. There is no such benefit under cap-and-trade.
- Under cap-and-trade without auctions, permits are given away to companies that already pollute - if companies reduce their emissions, they can sell the permits to other companies. Under this system, billions of dollars in assets are given away to polluting companies by the government. Some of you may be okay with rewarding past bad behavior. Some of you may be okay will billions of dollars of corporate welfare. For me, it leaves a bad taste in my mouth.