If this post is anything to judge by, I don't think David Frum totally understands Obama's cap and trade proposal. He says that the Obama administration plans to "use the revenues generated by cap and trade to pay for health care tax credits for lower-income people." That's not true. The revenues from cap and trade will be used to fund the $800 Making Work Pay tax cut, which is a refundable income-tax credit. It has nothing to do with the health care plan. He says that cap and trade "only generates revenue if American utilities emit more carbon in future years than they have done in past years." Again, not accurate. Imagine I pass a law taxing potatoes at the rate of one dollar a potato. This year, Americans eat a billion potatoes and I make a billion dollars. Next year, they eat a half billion potatoes and I make a half billion dollars. A half billion dollars is still more than I made when I wasn't taxing potatoes. He says that "taxes on carbon emissions do not fall on 'corporations.' They fall on users of electricity." Sort of. They fall on users of electricity if the corporation passes them on to the users of electricity. They will do this to some degree. Probably not 100 percent, as that would be a fairly sharp price increase. But it's important to remember that the tax only falls on users of electricity insofar as people use electricity. Electricity use isn't fixed. The intent of cap and trade is that it will push users of carbon-intensive energy sources towards cleaner energy sources that aren't taxed (which is why, in part, corporations won't pass on the whole tax; they want to blunt the impact of the policy, not accelerate it). Which brings us to our next point. Frum says that "the only merit of cap and trade is that it enables the government to collect revenue without admitting that a new tax has been imposed." No, the merit of cap and trade is that it discourages the use of carbon-intensive energy sources by making them more expensive relative to less carbon-intensive energy sources. Right now, solar power is much pricier than oil. But the carbon burnt by oil usage imposes all sorts of long-term environmental costs that aren't built into its present price. Cap and trade prices the carbon in the oil, which makes oil relatively more expensive as compared to solar energy, which burns no oil. That's the point of cap and trade. Update: Some in comments thing that Frum's final point was arguing that the only merit of cap and trade relative to a carbon tax is that it's sneakier. I disagree, but even so, it's still untrue. The two are very different policies.
