Climate change is here. Governments have one foot on the deck and are deciding exactly how they’re going to follow through with the other. The possibilities so far are two. I would like to suggest a third – a combination. A Carbon Tax and Cap-and Trade can accommodate each other to greater effect.
Advantages of both
Cap-and-trade sets a limit on total emissions and thus establishes vital atmospheric certainty. Tax ensures that there are inescapable costs attached to emission. Cap-and-trade rewards carbon sinks. Tax is transparent.
Disadvantages of both
In tax it seems that setting a total emissions limit is not plausible. In cap-and-trade it seems that permits will be issued according to subjectively determined policy, susceptible to malign influence and populist business-as-usual handicaps.
In both models special-interests will likely receive favor in the absence of large-scale, established renewable energy industries such as wind, wave and solar power. However it seems that there are more chances for malign influence under the cap-and-trade model than under the tax model. But a cap is integral. Additionally, renewable energy industries need greater investment and subsidy before they can match the influence of the old players. Should a tax be levied on emission for this purpose?
Arguments from both sides are convincing, yet the two models don’t seem to be mutually exclusive.
A combination
Seeing as the emission accounting systems would be basically the same for both models, it is practically feasible to combine them. A cap is necessary to ensure that global emissions targets are met. A tax is necessary, to make sure that there is a cost attached to polluting the atmosphere.
(This entry stays at the conceptual level by the way. I will go into more depth in later entires, adding hyperlinks to this entry.)
Background reading…
The Real Climate Debate: To Cap or to Tax?