I also read Nat's piece and I am sure we will talk soon.
I find his arguments on the CBO study really questionable, almost specious.

He had two.
One was that the CBO analysis was on a "straw-man" inflexible Cap.
I've seen that argument elsewhere.
It's not true.

They also combined the Cap with banking OR a Floor price; and the Cap with a Safety-valve and "managed borrowing".
These ARE the options that have been bantered about in legislative proposals.

In EVERY case, the CBO report found the carbon tax was superior in the efficiency of achieving our CC goals.

What Nat fails to identify, and what I feel he owes us, is exactly WHAT combination of "C&T&WHAT" he would like to see modeled against the carbon tax, in order for the carbon tax to be found to be the most cost-effective means of achieving our goals.

"Dear CBO – The CC legislation WILL contain the following policy parameters. Please model against the carbon tax."

And to say WHY he is certain that such a policy choice is the one that will ultimately be included in the CC legislation that passes.

Absent such a position, his "straw-man" argument has no validity in my humble opinion.

He claims the CBO finding that a carbon tax is superior to even the most flexible Cap-and-Trade policy is "flawed" because it is based on some estimated measure of the marginal cost of emissions-management.

He doesn't fault the estimated value, he faults the fact that it will change in value over time – primarily driven by the fact of some unidentifiable "tipping points" in GHG management.

It may surprise NAT and EDF to know that some people out there want to know, for good reason, what this thing is going to cost.

That cost will be determined either by what the flexible carbon tax will be set at, or it will be determined in a free-market inhabited by wildcat speculators in financial service products. Thanks, EDF for your choice.

I don't know why any economist would be promoting any solution that does not get us to our goals as cheaply as possible.

Finally, he complains that the CBO only modeled the "emissions" that need controlling as a policy tool, as opposed to the resulting levels of GHG in the atmosphere.

The only thing we can regulate via our policies are levels of emissions.
He says as much.
He admits that "traditional" economic thinking puts us in that analytical posture.
Yet, he claims that such analysis is somehow flawed.

When you read the language of the BlueDog and other Democrats on the Boxer and Warner bills, you better understand that the cost of solving our CC goals WILL BE a major factor in getting the sixty votes.

There is nothing in Nat's piece that convinces me that a C&T system is anything but a fool's mission.

Now consider how most countries do not even know their populations — and multiply that mismeasurement by — say — 120 (census once per decade versus monthly emissions measurements). Carbon taxes are much simpler to enact, measure, and enforce (except for gathering and burning wood — but they are likely to be missed in cap and trade too).

I took a look at Nat's post. While I agree with him (and my PhD is younger than his), I think he is leaving out another "transactions cost"-related aspect of cap and trade that does not exist with carbon taxes. Say that permits are issued on an annual basis (by auction), that a bank exists, etc. but it's "suddenly" discovered that too many permits are out there. The next auction must reduce the number of permits AND policing "black market" emissions must increase.

With taxes, the response is only to increase the tax on carbon inputs. That increase can occur on or before the date for the next auction, and there is no need to police emissions, since taxes are part of the prices at the start — not end — of the carbon-generating cycle. It's much harder to have a black market input (coal from a different mine) than black market output (coal burned in a burner without a permit).

Taxes are better because they are simpler AND easier to adjust. Forget the theory — these systems have to work, worldwide, in reality.

Nat Keohane, a Ph.D. economist here at EDF, wrote a great post explaining why a tax is the wrong tool for a job and cap-and-trade is the right tool. He wrote this in response to a phone call from the head of the Congressional Budget Office objecting to his review of a study they'd published. This is a good read – take a look:

http://blogs.edf.org/climate411/2008/03/04/cbo_followup/