Discuss: Cap/Tax Hybrid: Cap-and-Trade with Pay-Per-Permit

Posted on June 27, 2008

While pondering further the possibility of a hybrid carbon trading/tax model, the idea came for a cap-and-trade system of carbon trading that included permits that must be bought. This would ensure that the best parts of both the trading and tax model would be included in the new system. What do you think?

The strengths of the tax model are:

  1. the fact that a direct cost would be levide on emitters,
  2. and that some of these costs could be returned to the public.

The strengths of the cap-and-trade model are:

  1. that a definate limit on emissions is put in place, offering atmospheric surety and the best chance of success, and
  2. carbon trading could (be designed easily to ) reward carbon sinks.

So the process could go something like this:

  • The total emissions for each year could be represented by a fixed number of “Carbon Equivalent Permits” (“CO2e” Permits). The proceeds for selling these permits could be offered to each citizen in a one off payment or rebate. This would ensure that low-income earners are not less affected by the increase costs. They can also be channeled into renewable energy development and investment.
  • The permits could be offered to industry according to estimations of what they would need to produce. Limits would thus obviously be placed on the industry.
  • Once bought, the permits could be traded freely
  • Carbon Sink activity would create permits. It will be important that the price of capturing carbon is exactly mirrored by the price of emitting.

Something like that. What do you think?