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by Tom LaskawyI thought I might respond to some comments regarding the role of a carbon tax vs. cap-and-trade vs. regulation in addressing climate change. Certainly, there are a lot of folks advocating a carbon tax and it may yet end up playing a role (Larry Summers is a big fan). But at the same time, there's a strain of thought that says we can't simply expect price signals of one kind or another to lead to a zeroing out of carbon use, which is where we need to go. Speaking of which, a lot of people think of carbon taxes and gas taxes to be interchangeable, but in fact a carbon tax would have to be very very high to generate a significant tax on gasoline. From Kevin Drum, "In Europe, for example, gasoline is taxed at around $2-3 per gallon, which is equivalent to a carbon tax of about $1000/ton." That's a pretty hefty tax and it only gets you a couple bucks more at the pump. It's also been argued that carbon taxes are a less precise instrument generally for reducing emissions. As commenter Rob_k put it:
[T]he cap system produces a fixed and predictable level of carbon output, and a variable price. The tax system produces a fixed price, and variable/unpredictable output. When it comes down to it, cap and trade squares better with the real policy problem we're trying to solve.Yes, you should tax activity you want less of. But you won't necessarily eliminate something simply by taxing it. Look at work. We tax work pretty heavily but people still show up at the office every day - they don't really have a choice. Neither will a tax keep cars permanently parked in driveways. What we need is an alternative to gasoline engines. A tax will generate revenue that you can use to fund alternatives - but the government decides, for better for for worse, where that money flows. And a pure "dividend" system where carbon tax money is returned to consumers' pockets, while probably needed for low-income workers, would confuse the price signal even more. That's why government's regulatory role in emissions reductions will be key.A carbon tax won't automatically lead to the introduction of super-low or zero emissions vehicles, for example. It won't build the mass transit infrastructure or the electrical grid necessary for a low- or no-carbon economy. True, an ad-hoc system (which is what we have now and why ethanol is subsidized so much more than wind or solar on a per ton/C basis) is not what we want either. But government regulation (like CAFE and efficiency standards or zero-emissions electricity generation standards) will be central to creating real emissions reduction schemes. Of course, you still need a cap-and-trade system in order to establish a market price for carbon and build flexibility into the economy. But neither will it or a carbon tax - which is really just putting the price signal on carbon in a different place - in and of itself lead to the steep emissions cuts we require.
