Krugman on Carbon

December 7th, 2009 at 3:02 pm David Frum | 18 Comments |

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Paul Krugman in his blog argues that a cap-and-trade system is economically equivalent to a carbon tax, so why quibble?

Here’s why:

Democrats in Congress prefer cap-and-trade to a straightforward tax precisely because cap-and-trade is designed to be non-transparent. The hope, presumably, is that if the truth of what is being done is concealed, the voters will get less mad.

That’s not a good way to do business generally. In this case, however, non-transparency opens the way to a lot of ancillary mischief as well. The cap-and-trade bill moving through Congress comes attached to specific mandates requiring utilities to derive specified percentages of their power from favored power sources, especially solar and wind. These mandates utterly defeat the stated goal of reducing carbon emissions in the most economically rational way. Yet there they are. Likewise there is a huge new program of loan guarantees for federally favored technologies, including so-called clean coal.

It would not be theoretically impossible to attach these kinds of interventions to a carbon tax. But it’s a lot easier to do it with a system as complex and murky as cap-and-trade.

One more thing. With a carbon tax, the revenues from taxing carbon proceed directly to the federal treasury. Those revenues will offset the need to find other sources of revenue to repay the big debts the United States is now accumulating. Theoretically that could happen with cap-and-trade too. Only Congress has made clear that the emissions will not be auctioned off but (mostly) given away to energy producers. The benefit will be shared among consumers and shareholders. Nice for them. But that will mean that we’ll end with BOTH cap-and-trade and ALSO new tax increases. Nuts to that.

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18 Comments so far ↓

  • JJWFromME

    I think I understand your point. You want any price hikes to be transparent, so you can make a lot of noise any anything goes up (I’ll guarantee you, you’ll make no noise when they go down).

    Interestingly, cap and trade was originally a GOP idea:

    http://rootswire.org/content/cap-and-trade-republican-idea-works

    I can’t believe you’re throwing in your lot with Lomberg. Don’t miss this article by a Tufts professor on Cool It:

    http://ase.tufts.edu/gdae/Pubs/rp/Ackerman_CoolIt.pdf

    Also, make sure you do your homework on Lomberg’s polar bears:

    http://scienceblogs.com/deltoid/2008/08/so_whats_wrong_with_lomborg.php

  • JJWFromME

    I think I understand your point. You want any price hikes to be transparent, so you can make a lot of noise any anything goes up (I’ll guarantee you, you’ll make no noise when they go down).

    Interestingly, cap and trade was originally a GOP idea:

    http://rootswire.org/content/cap-and-trade-republican-idea-works

    I can’t believe you’re throwing in your lot with Lomberg. Don’t miss this article by a Tufts professor on Cool It:

    http://ase.tufts.edu/gdae/Pubs/rp/Ackerman_CoolIt.pdf

  • JJWFromME

    Also, make sure you do your homework on Lomberg’s polar bears:

    http://scienceblogs.com/deltoid/2008/08/so_whats_wrong_with_lomborg.php

  • Danny_K

    David: name ten, or even five, US Senators who support a carbon tax but not cap-and-trade. Name a single solitary GOP senator who does! I would take the carbon tax more seriously if actual GOP politicians supported it, not just wonks like you and Tyler Cowen. Also, as Matt Yglesias pointed out yesterday, any hypothetical carbon tax bill would be larded up with giveaways to favored industries, because that’s what happens to every major bill like this.

    If you take climate change seriously (and I don’t think you do), you’re putting yourself in the position of a starving man who won’t eat a hot dog because he’s holding out for unicorn steak.

  • procha

    I prefer cap and trade instead of a carbon tax because cap and trade actually considers a cap for CO2 emissions. Thus, we are certain that the quantity of emissions are not above this cap. With a carbon tax you actually do not have this certainty. Cap and trade, therefore, have more chances of accomplishing the desired emissions reductions.

    With regards to the politics and giveaways of both program, I do not think there is much difference.

  • JJWFromME

    I have to wonder if Frum actually *knows* that the climate email thing is incredibly small potatoes (if it’s anything at all), but the rest of the Mighty Wurlitzer has such a strong center of gravity (mixed metaphor, sorry) that he’s forced to tell a Noble Lie that it matters, in order to avoid marginalizing himself.

    When is the “reality based community” going to be enfranchised in the GOP again, David?

  • JJWFromME

    Here’s a new website dedicated to “Swifthack”:

    http://swifthack.com/

  • About climate, cap-and-trade, krugman | Find me About

    [...] Paul Krugman in his blog argues that a cap-and-trade system is economically equivalent to a carbon tax, so why quibble? Democrats in Congress prefer cap-and-trade to a straightforward tax precisely because cap-and-trade is designed to be …Read Original Story: Krugman on Carbon – FrumForum [...]

  • CTF

    I could not agree more that the smartest course of action is to heed the advice of virtually ALL of the world’s leading scientists and economists who believe that a revenue-neutral carbon tax is the best solution to climate change.

  • sinz54

    Even some noted progressives are recoiling at the prospects for corruption and cheating implied by cap-and-trade.

    Annie Leonard, progressive producer of the anti-consumerist video “The Story of Stuff,” has now produced “The Story of Cap and Trade.” In it, she explains how cap-and-trade is a license for polluters to cheat without reducing greenhouse gases significantly (as the Europeans, who were first with cap-and-trade, are now finding out the hard way):

    http://www.youtube.com/watch?v=pA6FSy6EKrM

    I continue to support a simple carbon tax as the best way to deal with greenhouse gases.

    Milton Friedman’s solution to all pollution problems: Tax the pollution!

  • whecht

    I have been in favor of a carbon tax since 1979 when I talked to John Anderson about his idea to have a 50 cent gasoline tax and cut social security taxes in half.

    I still think a carbon tax, instead of a gas tax, is a great idea as long as it is revenue neutral. My choice still is to cut the payroll tax to make it cheaper to hire workers.

  • SFTor1

    I can’t believe you people are buying the proposition that we have a carbon problem.

    We don’t.

    We have a pollution problem many places, and we need to address that. We have temperature fluctuations within a normal range—no need for alarm. CO2 is unable to raise temperatures more than it already has, and the natural feedbacks from water vapor and clouds have been shown to be negative.

    The rest is religion.

  • sunroof

    SFTor1 says : I can’t believe you people are buying the proposition that we have a carbon problem.

    Yes we do. It’s called foreign oil dependence and the coming age of peak oil, also known as the $75 fillup.

    The US needs a tax on carbon, especially gasoline, diesel, heating oil and jet fuel. Call it the Patriot Tax, set it at something on the order of 10-25 cents per gallon, and allocate half the amount to paying for the cost of the Iraq and Afghanistan wars and half towards debt reduction. Aggressively pursue alternative fuels, especially advanced energy storage technologies so that we can all generate our own solar power and re-charge our electric cars at night.

    Yes, we have a carbon problem. It’s called Saudi Arabia.

  • Toddtheconservative

    The whole thing is apart of a sick ideology that is enslaving millions:

    http://americaspeaksink.com/2009/12/ideology-is-the-bondage-of-slavery/

  • sinz54

    sunroof: Yes we do. It’s called foreign oil dependence and the coming age of peak oil, also known as the $75 fillup.
    That’s a bad argument,
    because one answer to dependence on Middle East oil is to pursue fossil fuels here in North America, such as coal and shale oil and oil from tar sands.

    But coal and shale oil and oil from tar sands will continue to contribute to global warming.

    No, we can’t finesse the global warming issue by pretending it’s really about dependence on Middle East oil or about creating “green” jobs (what would Mr. Bastiat have thought about that?). It’s really about preventing global warming, which means no longer pursuing fossil fuels, even the ones we have in North America.

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