Why a carbon tax is better than cap-and-trade
February 5th, 2008 by Jim JustOregon and other western states joining in the WCI are laying the ground work for a carbon cap-and-trade program. While cap-and-trade may be better than nothing, it’s far from the best approach. The Carbon Tax Center identifies five reasons why a tax on carbon is better than any cap-and-trade scheme:
- Carbon taxes will lend predictability to energy prices, whereas cap-and-trade systems will do little to mitigate the price volatility that historically has discouraged investments in less carbon-intensive electricity generation, carbon-reducing energy efficiency and carbon-replacing renewable energy.
- Carbon taxes can be implemented much sooner than complex cap-and-trade systems. Because of the urgency of the climate crisis, we do not have the luxury of waiting while the myriad details of a cap-and-trade system are resolved through lengthy negotiations.
- Carbon taxes are transparent and easily understandable, making them more likely to elicit the necessary public support than an opaque and difficult to understand cap-and-trade system.
- Carbon taxes can be implemented with far less opportunity for manipulation by special interests, while a cap-and-trade system’s complexity opens it to exploitation by special interests and perverse incentives that can undermine public confidence and undercut its effectiveness.
- Carbon tax revenues can be rebated to the public through dividends or tax-shifting, while the costs of cap-and-trade systems are likely to become a hidden tax as dollars flow to market participants, lawyers and consultants.