THE DEBATE OF OUR TIME: TAX OR TRADE?

This is what you have been reading about at NewEnergyNews for some time now: Is it tax or trade? Scroll down or check headlines to the right for more information. One way or another, we’ve GOT to start paying for emissions. And when we do, the energy game changes completely.

U.S. Carbon Market Options
Kristyn Ecochard, May 23, 2007 (UPI)
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WHO
James Kvaal, policy director for Democratic presidential candidate former Sen. John Edwards, D-N.C.; Stefan Moser, policy officer, European Commission; Gregg Easterbrook,visiting fellow, Brookings Institution; Denis McDonough, policy adviser, Democratic presidential contender Sen. Barack Obama, D-Ill.

WHAT
The burning of fossil fuels produces greenhouse gas (GHG) emissions which are producing global climate change. These forms of energy are cheap because the harm produced by the GHGs is not part of the cost. A price for carbon dioxide emissions must be imposed. Only one question remains: Carbon tax or Cap-and-trade?

WHEN
The EU trading scheme was implemented in 2005. The second phase begins next year. A third phase, with more corrections, will start in 2012.
The U.S. decision probably won’t come until after the 2008 presidential election.

WHERE
Poland is taking an active role in developing the EU’s phase two and may act as bank.

WHY
- Economists tend to support a tax, though that leaves a debate about how much and how the tax revenues would be distributed. Politicians, always reluctant to impose new taxes, tend to prefer a free market driven cap-and-trade system. Business and industry are unified on only one thing: They need certainty to move forward.
- The EU has had a cap-and-trade system and has had problems with price fluctuations, manipulation, fraud and enforcement. The second phase will make corrections. A carbon credit “central bank” remains uncertain, though Poland make take that role.
- Many have faith in a freemarket system based on past successes. Previous US cap-and-trade programs involving sulfur and acid-rain regulations have been very successful faster and cheaper than predicted.
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QUOTES
- Kvaal: "A tax is a tool that might help meet a goal, but a cap and trade system sets the goal…"
- Mosher: “A lot was learned during the first two years of the EU cap-and-trade] system… The price was originally set too high… There's really no incentive to go into the banking part of it…But there was an increase initially in the cost of energy for consumers…”
- Easterbrook: “One of the major problems with allocations is that it leads to lobbying and can never be done fairly…just set the price and see what the market comes up with…A carbon cap-and-trade system, set somewhere around $25 per ton, could be highly profitable and still cheap enough that if it did fail the backlash would not do too much damage…”
- McDonough: "More ink is being spilled in U.S. papers about how the EU failed and the United States will, too…"