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Cap and Trade and a Carbon Tax are equivalent in outcome. Cap and trade would impose fees on everyone regardless of how much it costs them to lower emissions al

Cap and Trade and a Carbon Tax are equivalent in outcome. Cap and trade would impose fees on everyone regardless of how much it costs them to lower emissions also. The problem with Cap and Trade is that it targets the large scale emitters rather than the item desired to be limited. Imagine that you had five major producers putting out 30% of airborne carbon, and 50,000 minor producers putting out 70%. The cost of administering a cap and trade system to the minor producers would be incredibly expensive - the legislation would instead focus on gouging the five major producers. Also imagine that the 50,000 minor producers could very easily cut their production of carbon in half. The price should be set to the amount of damage the externality causes. Current estimates of the social cost of carbon is ~$220 per ton. http://www.nature.com/nclimate/journal/vaop/ncurrent/full/nclimate2481.html http://www.nature.com/nclimate/journal/vaop/ncurrent/full/nc... Cap and trade punishes large players - taxes are fair because they impose the same fees on everyone. Cap and Trade being the least expensive way possible is also a terrible loss for good tax reform. If we implement a responsible carbon tax, the offset income can be used to reduce associated corporation taxes, sales taxes, or even income taxes. An optimal tax system taxes things and behaviors we don't want, and subsidises things and behaviors we do want. Let's get rid of an income tax, and replace it with a environmental tax. More money in your pocket, and cleaner air.

rayiner 10y ago
As California's attempts to tax mileage of hybrid and electric vehicles proves, if you create an additional source of revenue for the government, tax levels will bear no relation to the harm they're designed to compensate for. It becomes just another way for the government to raise taxes without admitting to doing so.
- tamana 10y ago
  It's not a secret that people pay car fees.
- wbl 10y ago
  The gas tax was set to charge for road wear, not carbon externialities
  - jacquesm 10y ago
    And VAT in Europe was only created to rebuild after the war. Tax repeals are very rare, once they're worked into the budget they are there to stay and usually will expand to pay for other things besides the reason they were originally created.
- lmm 10y ago
  Hybrids aren't necessarily emitting substantially less.
  - ljf 10y ago
    I was always shocked by the 'good' mpg US hybrids get, compared to Uk/Euro diesels - (though some of the difference is down to different sizes in gallons between us, but still. My 12 year old volvo v70 (not a small car) got 53mpg easily
    - AlgorithmicTime 10y ago
      We have stricter (non-CO2) emissions standards and differing safety standards which result in lower fuel efficiencies.
    - crzwdjk 10y ago
      But are those UK or US gallons? Cars in the UK get 20% more miles per gallon simply because gallons in the UK are 20% bigger.
      - ljf 10y ago
        Prius highway rating of 4.4 L/100 km (53 mpg-US / 64 mpg-imp) Volvo V50 highway rating: 3.8 L/100km - this is the 'extra economical' diesel, with start/stop, aero body and aero wheels, so a good match for the Prius - seems odd that all that extra tech wouldn't give them much improvement? I guess city driving it may be better but I don't have time to dig out the figures now.
tomjen3 10y ago
If I can save 10 tons of co2 at a cost of 2 dollars and you can save it only at 4 dollars, then if we have to lower the amount by 10 tons with a tax that is evenly distributed the total cost is going to be 3 dollars - 50% more than under a cap and trade system, where I sell you 10 tons worth of co2 credits and implement all the changes. Since ultimately a carbon limitation is going to mean more expensive products, it is important to limit it as much as possible. Also I don't see how a cap-and-trade system is going to be more difficult to enforce than a tax, you are still going to have to check if all the companies have paid their taxes.
- slavik81 10y ago
  The 50% in your analysis stems entirely from the fact that you're using ridiculously small integers. At any tax rate greater than $2, the first person would save money by making the change. You say $3, but it could be $2.01. At exactly $2 they would have no preference between enacting the change or not. Of course, you omitted that the same must be true for cap and trade. The person who can save CO2 at a cost of $2 would have no preference between enacting the change or not if they were only to be paid $2. You'd need to pay them more. Like, $2.01 or $3 if we're only using integers. Exactly like the tax.
Shivetya 10y ago
cap and trade is a means by which politicians can pick favorites and get around rules that might prevent subsidizing particular businesses. tax everyone to change behavior is the best route plus it does tend to stop the mini games that go on with trying to transfer funds to contributors and the like
Alex3917 10y ago
> An optimal tax system taxes things and behaviors we don't want Except for that the goal isn't to punish polluters, it's to get carbon to a level that won't result in the end of human civilization. By moralizing the issue you're just making it more likely that we won't get there.
- ThrustVectoring 10y ago
  Of course the goal isn't to punish polluters. It's to convince them to pollute less. This is why tax things and behaviors we don't want - to make it more expensive, so that there's less of it.
  - Alex3917 10y ago
    > It's to convince them to pollute less. That's not the goal. What matters is the total amount of pollution, not how much any individual pollutes.
    - ThrustVectoring 10y ago
      I'm not sure what the distinction you're trying to make is. The total amount of pollution is the sum total of every individual's pollution. In order to reduce the total amount of pollution, individuals have to pollute less (on average). Conversely, if individuals pollute less (on average), then total pollution goes down.
    - dredmorbius 10y ago
      Raising the price of a thing tends to reduce the quantity demanded. There are perverse cases. Veblen and Giffen goods (higher prices increase consumption). But generally, the relationship holds. A cap-and-trade or carbon tax system, to work, has to establish how much carbon can be emitted (I'm ignoring for the moment the argument that the answer may well be "none"). A tax or trade mechanism both invoke market mechanisms to allow individual carbon emitters or absorbers to determine how much activity they'll undertake, including seeking alternatives. If a tax or C&T at a given level isn't sufficient, then the solution is to change the basis level. The result is still (in theory) achieved in the market. You and ThrustVectoring are arguing two components of the same mechanism. See also the Jevons Paradox: increasing efficiency (without also increasing prices) increases the amount of a good or resource consumed. If you want less of something, raise its price. E.g., tax it.
winstonewert 10y ago
"The cost of administering a cap and trade system to the minor producers would be incredibly expensive - the legislation would instead focus on gouging the five major producers" Why is that different from the tax approach? Wouldn't taxing the 50,000 minor producers appropriate to their levels of pollution be equally as expensive?
- icambron 10y ago
  The key part of that is administering part. Cap and trade requires the producer participate in a market for cap allowances. It's that overhead that makes it more expensive.
  - winstonewert 10y ago
    Ok, yes, I see that there will be some extra expenses in tracking and trading the allowances. I would expect that to be neglible next to the cost of tracking the pollution by all those producers.
- aoeuasdf1 10y ago
  No, if they're producing by buying oil or coal. Just tax the source.
  - winstonewert 10y ago
    I assumed in this scenario that the the producers being taxed are already the ones who extract the oil or coal. If there are 50,000 minor oil producers then taxing all of them will be a bit of a headache.
tim333 10y ago
>Current estimates of the social cost of carbon is ~$220 per ton. Wikipedia has "from less than $1/tC to over $1,500/tC." It's an inexact science.

rayiner 10y ago

As California's attempts to tax mileage of hybrid and electric vehicles proves, if you create an additional source of revenue for the government, tax levels will bear no relation to the harm they're designed to compensate for. It becomes just another way for the government to raise taxes without admitting to doing so.

tamana 10y ago
It's not a secret that people pay car fees.
wbl 10y ago
The gas tax was set to charge for road wear, not carbon externialities
- jacquesm 10y ago
  And VAT in Europe was only created to rebuild after the war. Tax repeals are very rare, once they're worked into the budget they are there to stay and usually will expand to pay for other things besides the reason they were originally created.
lmm 10y ago
Hybrids aren't necessarily emitting substantially less.
- ljf 10y ago
  I was always shocked by the 'good' mpg US hybrids get, compared to Uk/Euro diesels - (though some of the difference is down to different sizes in gallons between us, but still. My 12 year old volvo v70 (not a small car) got 53mpg easily
  - AlgorithmicTime 10y ago
    We have stricter (non-CO2) emissions standards and differing safety standards which result in lower fuel efficiencies.
  - crzwdjk 10y ago
    But are those UK or US gallons? Cars in the UK get 20% more miles per gallon simply because gallons in the UK are 20% bigger.
    - ljf 10y ago
      Prius highway rating of 4.4 L/100 km (53 mpg-US / 64 mpg-imp) Volvo V50 highway rating: 3.8 L/100km - this is the 'extra economical' diesel, with start/stop, aero body and aero wheels, so a good match for the Prius - seems odd that all that extra tech wouldn't give them much improvement? I guess city driving it may be better but I don't have time to dig out the figures now.

tomjen3 10y ago

If I can save 10 tons of co2 at a cost of 2 dollars and you can save it only at 4 dollars, then if we have to lower the amount by 10 tons with a tax that is evenly distributed the total cost is going to be 3 dollars - 50% more than under a cap and trade system, where I sell you 10 tons worth of co2 credits and implement all the changes. Since ultimately a carbon limitation is going to mean more expensive products, it is important to limit it as much as possible. Also I don't see how a cap-and-trade system is going to be more difficult to enforce than a tax, you are still going to have to check if all the companies have paid their taxes.

slavik81 10y ago
The 50% in your analysis stems entirely from the fact that you're using ridiculously small integers. At any tax rate greater than $2, the first person would save money by making the change. You say $3, but it could be $2.01. At exactly $2 they would have no preference between enacting the change or not. Of course, you omitted that the same must be true for cap and trade. The person who can save CO2 at a cost of $2 would have no preference between enacting the change or not if they were only to be paid $2. You'd need to pay them more. Like, $2.01 or $3 if we're only using integers. Exactly like the tax.

Shivetya 10y ago

cap and trade is a means by which politicians can pick favorites and get around rules that might prevent subsidizing particular businesses. tax everyone to change behavior is the best route plus it does tend to stop the mini games that go on with trying to transfer funds to contributors and the like

Alex3917 10y ago

> An optimal tax system taxes things and behaviors we don't want Except for that the goal isn't to punish polluters, it's to get carbon to a level that won't result in the end of human civilization. By moralizing the issue you're just making it more likely that we won't get there.

ThrustVectoring 10y ago
Of course the goal isn't to punish polluters. It's to convince them to pollute less. This is why tax things and behaviors we don't want - to make it more expensive, so that there's less of it.
- Alex3917 10y ago
  > It's to convince them to pollute less. That's not the goal. What matters is the total amount of pollution, not how much any individual pollutes.
  - ThrustVectoring 10y ago
    I'm not sure what the distinction you're trying to make is. The total amount of pollution is the sum total of every individual's pollution. In order to reduce the total amount of pollution, individuals have to pollute less (on average). Conversely, if individuals pollute less (on average), then total pollution goes down.
  - dredmorbius 10y ago
    Raising the price of a thing tends to reduce the quantity demanded. There are perverse cases. Veblen and Giffen goods (higher prices increase consumption). But generally, the relationship holds. A cap-and-trade or carbon tax system, to work, has to establish how much carbon can be emitted (I'm ignoring for the moment the argument that the answer may well be "none"). A tax or trade mechanism both invoke market mechanisms to allow individual carbon emitters or absorbers to determine how much activity they'll undertake, including seeking alternatives. If a tax or C&T at a given level isn't sufficient, then the solution is to change the basis level. The result is still (in theory) achieved in the market. You and ThrustVectoring are arguing two components of the same mechanism. See also the Jevons Paradox: increasing efficiency (without also increasing prices) increases the amount of a good or resource consumed. If you want less of something, raise its price. E.g., tax it.

winstonewert 10y ago

"The cost of administering a cap and trade system to the minor producers would be incredibly expensive - the legislation would instead focus on gouging the five major producers" Why is that different from the tax approach? Wouldn't taxing the 50,000 minor producers appropriate to their levels of pollution be equally as expensive?

icambron 10y ago
The key part of that is administering part. Cap and trade requires the producer participate in a market for cap allowances. It's that overhead that makes it more expensive.
- winstonewert 10y ago
  Ok, yes, I see that there will be some extra expenses in tracking and trading the allowances. I would expect that to be neglible next to the cost of tracking the pollution by all those producers.
aoeuasdf1 10y ago
No, if they're producing by buying oil or coal. Just tax the source.
- winstonewert 10y ago
  I assumed in this scenario that the the producers being taxed are already the ones who extract the oil or coal. If there are 50,000 minor oil producers then taxing all of them will be a bit of a headache.

tim333 10y ago

>Current estimates of the social cost of carbon is ~$220 per ton. Wikipedia has "from less than $1/tC to over $1,500/tC." It's an inexact science.