0 0 0
Examining Cap-and-Trade vs. Carbon Tax as Climate Policy

Submitted by EFC Team on June 17th, 2013


For additional takes, check UN Foundation Senior Fellow Robert Repetto’s white paper and op-ed on the same topic. 

In light of recent success in regional cap-and-trade schemes, it’s time to reconsider a national system. California’s system is seeing record prices for carbon, generating enormous revenue for the state. RGGI’s success has led the New Hampshire legislature to pursue efforts to further tighten RGGI’s emissions cap.

The need for dramatic action on climate change is clear and urgent. As the draft National Climate Assessment by the U.S. Global Change Research Program makes clear, without strong action the damages from heat waves, droughts, flooding, hurricanes and other extreme weather events will continue to worsen, creating even more human and economic disasters.

There are basically three approaches to consider:  a direct carbon tax; a direct regulatory cap on emissions source by source; or the creation of a market-driven cap on emissions through a cap-and-trade approach.   Climate change deniers have so far succeeded in preventing adoption of whichever of these appears to have any momentum.  With cap-and-trade, they not only managed to derail and ultimately prevent enactment of the Waxman-Markey bill in the 110th Congress, but were able to tar cap-and-trade as a fundamentally unacceptable strategy in the general political dialogue – notwithstanding its prior consensus success with SO2 and NOX.

In light of EPA’s halting efforts to put a regulatory regime into place under the Clean Air Act despite clear judicial mandates to do so, and with the political impossibility of adopting any major new tax (much less one focused on preventing climate change), perhaps it is time to take cap-and-trade back out of the obscure file of policy-ideas-whose-names-must-not-be-mentioned.  As the UN Foundation’s Robert Repetto details in the recently published Cap-and-Trade is Better Climate Policy Than a Carbon Tax,cap-and-trade should be considered as a key tool to a national strategy to address climate change. As regional domestic systems – as well as international schemes – have shown, cap-and-trade can avoid the politically sensitive issue of taxation, reduce costs of compliance, and allow for complete flexibility and market-driven solutions to meeting carbon reduction goals.

Indeed, leaders from the electric utility sector – the largest emitter of greenhouse gases – have called for a price on carbon for some time now. Companies such asExelon, Duke and NRG have advocated for carbon markets, saying the financial incentive is needed to move to a clean energy future. Cap-and-trade provides this, without the prescriptive restraints of regulatory regimes. It also overcomes challenges in predicting pricing that accompany carbon tax systems.

President Obama has pledged to “respond to the threat of climate change.” With a successful track record, support from the advocacy and business communities, and a communications effort sufficient to remove the false disparagement of a pollution-control approach that was, after all, developed in a Republican Administration, perhaps now is the time to reconsider a national cap-and-trade system, this time on its merits.


Leave a Reply

Your email address will not be published. Required fields are marked *