Cap It or Tax It?
The Washington Post
has a front-pager today
on the various problems that have been plaguing Europe's attempts to curb carbon emissions with a cap-and-trade system. The sheer complexity of the regime has, among other things, allowed countries to cheat in order to protect their home industries. The prognosis isn't exactly terminal--Europe's still working to iron out the wrinkles, and U.S. policymakers are trying to learn from their mistakes--but it's clear that most carbon-trading programs will inevitably allow for a certain amount of monkey business.
Now, economists such as William Nordhaus have been noting
the problems with cap-and-trade for quite some time. And most environmentalists, I think, agree that if we want to reduce carbon emissions, a simple carbon tax would be easier to administer--and harder to cheat--than a cap-and-trade system (although lord knows companies are perfectly capable of lobbying for tax loopholes, too). The catch, though, is that most politicians see a carbon tax as a total non-starter, especially after the BTU-tax debacle
in 1993. And legislators like
the opacity of cap-and-trade, because it shields them from voter anger over price increases. That's why all the major climate-change bills
in the Senate right now involve carbon trading.
On the other hand, conservatives are increasingly speaking out in favor of a carbon tax. Greg Mankiw and Kevin Hassett are both on board
. And now I see Reason
's Ron Bailey is flirting with the idea
, too. So who knows, maybe we'll see some bizarre alliance between greens, right-wing economists, and libertarians on the issue.