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 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.