Seeker Blog

Good news today from CIRES visiting scholar Kevin Vranes: NY Mayor Bloomberg has chosen the side of the angels in the revenue-neutral carbon tax vs. cap-and-trade debate. Bloomberg:

Both cap-and-trade and pollution pricing present their own challenges – but there is an important difference between the two. The primary flaw of cap-and-trade is economic – price uncertainty. While the primary flaw of a pollution fee is political, the difficulty of getting it through Congress. But I’ve never been one to let short-term politics get in the way of long-term success. The job of an elected official is to lead – not to stick a finger in the wind. It’s to stand up and say what we believe – no matter what the polls say is popular or what the pundits say is political suicide.

From where I sit, having spent 15 years on Wall Street and 20 years running my own company, the certainty of a pollution fee – coupled with a tax cut for all Americans – is a much better deal. It would be better for the economy, better for taxpayers and – given the experiences so far in Europe – it would be better for the environment. I think it’s time we stopped listening to the skeptics who say, “But for the politics,” and start being honest about costs and benefits. Politicians tend to prefer cap-and-trade because it obscures the costs. Some even pretend that it will lower costs in the short run. That’s nonsense. The costs will be the same under either plan – and if anything, they will be higher under cap-and-trade, because middlemen will be making money off the trades…

For the money, a direct fee will generate more long-term savings for consumers, and greater carbon reductions for the environment. And I don’t know about you, but when the economists say one thing and the politicians say another, I’ll go with the economists.

…There are also logistical issues with cap-and-trade. The market for trading carbon credits will be much more complex and difficult to police than the market for the sulfur dioxide credits that eliminated acid rain. And there are political issues – because the system is subject to manipulation by elected officials who want to hand out exemptions to special interests. A cap-and-trade system will only work if all the credits are distributed from the start – and all industries are covered. But this begs the question: If all industries are going to be affected, and the worst polluters are going to pay more, why not simplify matters for companies by charging a direct pollution fee? It’s like making one right turn instead of three left turns. You end up going in the same direction, but without going around in a circle first.