Geoscience Reference
In-Depth Information
The history of regulation suggests that environmental rules tend to
have greater durability and have generally been irreversible. Congress
introduced a tightening of the rules with respect to SO
2
emissions in
1990. Even with the major political changes in the United States since
that time, emissions standards have not changed appreciably. For this
reason, many analysts believe that the regulatory route of a cap-and-
trade policy would be more durable and have a larger chance of being a
credible long-term policy.
How do I come out after weighing the arguments? My fi rst choice
is . . . either one! The most important goal is to raise the price of CO
2
and
other GHG emissions. If countries fi nd it easier to raise prices with cap
and trade, particularly with auctions, that will accomplish the goal. Other
countries might fi nd they need a stable and reliable revenue source and
lean toward carbon taxes, and I would applaud them. As I will emphasize
in Chapter 21's discussion of alternatives, either one is so far superior to
other approaches that we must focus on the major goal—raising GHG
prices—and not let the differences be obstacles to effective policies.
If I were put on the rack and forced to choose, I would admit that
the economic arguments for carbon taxation are compelling, particu-
larly those relating to revenues, volatility, transparency, and predict-
ability. So if a country is genuinely unsure, I would recommend it use
the carbon tax approach. However, if a country like the United States
has a powerful aversion to new taxes but can swallow a cap-and-trade
system, particularly one with the allowances auctioned, then that is
defi nitely better than allowing unchecked climate change or relying on
ineffective substitute approaches.
HYBRIDS
There are many competing considerations in weighing carbon taxes
versus cap and trade. Is there a compromise, crossing the strengths of
the carbon tax regime with cap and trade to produce a hardy hybrid?
Perhaps the most promising approach would be to fashion a hybrid
mechanism that has quantitative limits with a price fl oor and a safety
valve price at the higher end. For example, a system might have quan-
titative targets with a minimum CO
2
price as a carbon tax fl oor. Some
