Geoscience Reference
In-Depth Information
countries might organize their climate-change policies around a cap-and-
trade model, as Europe does. They could also incorporate an upper-end
safety valve into the system wherein nations could sell carbon emissions
permits at a multiple of the tax, perhaps at a 50 percent premium of
the base level, to reduce volatility and ensure that the economic costs
of the program are contained.
A hybrid system would share the strengths and weaknesses of the
two options. It would not have fi rm quantitative limits of a pure cap-
and-trade system. But the soft quantitative limits would guide fi rms
and countries and would generate confi dence that the climatic targets
were being achieved. The hybrid would have some but not all of the
advantages of a carbon tax system. It would have more favorable public
fi nance characteristics, reduce price volatility, mitigate the incentives for
corruption, and help alleviate uncertainties. The narrower the difference
between the price fl oor and the safety valve price, the more the program
would have the advantages of a carbon tax; the wider the difference, the
more it would have the advantages of a cap-and-trade system.
As with systems as complex as the economy and the climate, many
design details are just sketches in a brief treatment. The reader can refer
One particularly thorny issue is the treatment of carbon sequestered in
forests and soils. In principle, a system would give carbon credits when
carbon is accumulated in trees, and the owners would be debited when
trees are cut and burned. In practice, keeping an accurate record of
these fl ows is beyond current capabilities, so including forests in an in-
ternational GHG control system presents real problems.
Another complication is the measurement of fl ows of GHGs across
national borders when the national emissions control systems are not
harmonized. Suppose that the United States has a tax of $50 per ton of
CO
2
while Canada has a tax of $20 per ton. In an ideal world, imports
of CO
2
from Canada to the United States might receive an additional tax
of the difference of $30 per ton. The diffi culty comes in how to treat
indirect or “embodied” CO
2
and other GHGs. Should we include only
fossil fuels in the border tax? Or goods that are highly CO
2
intensive,
like steel? Or should we include an estimate for all imports? Border tax
