Last week, Brad Plumer over at the New Republic made some thoughtful points about climate policy that are worth taking a look at.
He puts well the key difference between a cap and a tax:
With a tax, we know in advance how much it will cost, but aren’t sure what emissions level will result. With a well-enforced cap-and-trade regime, we know the maximum level of emissions we’ll get, but aren’t positive how much it will cost to get there…
We take issue with some of his thoughts about to how to cope with fluctuations in the market price of carbon (a so-called “safety valve” is a bad idea), but it’s great to see a clear-headed reaction to the fluctuations in the European market.
2 Comments
It seems like the other key difference between cap-and-trade and a tax is that while a tax can penalize carbon sources, cap-and-trade can penalize sources while rewarding sinks in a consistent framework.
Yes, that’s the beauty of it — the cap does discourage emissions by putting a price on polluting (like a tax would). But on top of that, it offers powerful incentives to those who have the ability to cut more. Thanks for the comment.