CARBON TAX IS COMING?

One of the hottest debates in D.C.: Carbon cap-and-trade or carbon tax?

Tax on Carbon Emisions Gains Support; Industry and Experts Promote It as Alternative to Help Curb Greenhouse Gases
Juliet Eilperin and Steven Mufson, April 1, 2007 (Washington Post)

WHO
Congression, lobbyists, think-tank opinionators and interest group spokespeople.

WHAT
The relative merits of a cap-and-trade system for managing and limiting carbon dioxide emissions versus a tax on carbon dioxide production. Cap-and-trade (in which the government sets limits on emissions, allocates permits to emitters and allows heavy emitters to buy credits from under emitters) is promoted by business as a means of letting the marketplace do the work. Some claim taxing emissions (which increases the cost of emitting and causes the cost to be passed on to consumers) will create more efficiency and less bureaucracy.

WHEN
The political decision-making process has begun and, hopefully, will develop a consensus and lead to legislative action before the planet goes up in flames. Hopefully.
Democrats vow to do something soon. The Bush administration is “agin’ it.”

WHERE
The seats of power in Washington, D.C.

WHY
- Global warming.
- Economists and environmentalists are split. Lots of “…on the one hand and on the other hand…”
- European Union leaders who initially favored a carbon tax but settled on a cap-and-trade market-based system in the hope of drawing the United States into the process now summarize their experience by stating that a tax is preferable but not legislatively likely while a cap-and-trade system is a workable second best.

QUOTES
- "We want to do the least damage to the growth of GDP," said Michael Canes, a private consultant and former chief economist for the American Petroleum Institute…Between a cap system and a carbon tax, "a carbon tax will be the much more cost-effective way to go," he said, though he added that there are other ways to reduce emissions.

- Robert J. Shapiro, a private consultant who was a Commerce Department official in the Clinton administration, agrees. A cap-and-trade system -- involving plant-by plant-measurements -- would be difficult to administer, he said, and would provide "incentives for cheating and evasion." And the revenue from a carbon tax could be used to reduce the deficit or finance offsetting cuts in payroll taxes or the alternative minimum tax.
- William A. Pizer, a senior fellow at the centrist think tank Resources for the Future and a former senior economist for President Bush's Council of Economic Advisers, estimates that the benefit-to-cost ratio of a tax-based system would be five times that of a cap-and-trade system.
- Red Cavaney, president of the American Petroleum Institute: "A cap-and-trade system isn't necessarily the be-all and end-all…A carbon tax, everything, should be on the table from the beginning."