How Do We Curb Carbon: The Debate Over an Emissions Cap or a Tax

Yale Environment 360. Posted May 19, 2009.

Proponents of carbon taxes worry about the propensity of political processes under a cap-and-trade system to compensate sectors through free allowance allocations. But a carbon tax is sensitive to the same political pressures, and may be expected to succumb in ways that are ultimately more harmful, thus reducing environmental achievement and driving up costs.

Charles Komanoff, co-director of the Carbon Tax Center.

A cap-and-trade system helped curb sulfur emissions and lessen acid rain. But by any measure, the task of reducing carbon emissions and averting climate catastrophe will be orders of magnitude more massive.

Decarbonizing the world's energy systems will entail scaling up hundreds of innovative technologies, some of which don't yet exist, as well as rewiring humanity's ecological consciousness. Only a carbon tax can quickly drive the across-the-board transition from fossil fuels to renewable and efficient energy. Its key attributes make it far superior to cap-and-trade:

• Price-certainty -- Carbon-critical decisions -- where to locate a home or facility, how to design a product, which products to create -- must be made with the fullest knowledge of future carbon prices. The clear price signals from a ramped-up carbon tax stand in stark contrast to the price volatility endemic to cap-and-trade.


• Simplicity and immediacy -- British Columbia enacted and implemented a carbon tax in five months. North America's only comparable carbon cap-and-trade system, covering the Northeastern U.S., took five years of negotiation and rule-making.


• International harmonization -- Carbon-taxing nations can easily offset import price differences with a "border tax adjustment." A cap-and-trade system offers no such yardstick.


• Transparency -- With Americans recoiling from opaque, insider-driven financial instruments, a carbon tax's directness is gaining political traction.

"The American people want us to level with them," Rep. John B. Larson (D-CT.), said in March. "We create price certainty without any new bureaucracies or complicated auction schemes." Larson, a member of the House leadership, is looking to meld traditional American pragmatism with a newly resurgent idealism. His bill, and carbon taxing, deserve our support.

Eileen Claussen, president of the Pew Center on Global Climate Change.

An economy-wide greenhouse gas cap-and-trade system sets a clear limit on greenhouse gas emissions and minimizes the costs of achieving this target. Environmental integrity and cost-effectiveness are two critical advantages that make cap-and-trade the right policy mechanism to tackle climate change in an economically responsible manner. Complementary measures and incentives -- including for coal, transportation, technology commercialization, and buildings and energy efficiency -- are also necessary pieces of the climate solution.

Unlike traditional regulation, a cap-and-trade program constrains emissions but lets market forces set a price on emissions. Rather than mandating a specific technology, the flexibility afforded by emissions trading markets helps identify where emission reductions can be achieved most cost-effectively. Cap-and-trade stimulates the development of new technological solutions that can enable much deeper emissions cuts at lower cost in the future.

A carbon tax is often presented as a main alternative to cap and trade. A core difference between these approaches involves the issue of certainty. A tax provides cost certainty by setting a fixed cost on emissions, whereas cap-and-trade delivers emissions certainty by establishing a declining emissions limit based on an assessment of the reductions level required to protect the climate. In contrast to a cap-and-trade approach, a tax would not provide the same level of emissions certainty during any given compliance period.

See more stories tagged with: global warming, climate change, cap and trade, waxman-markey, climate bill, climate legislation, carbon tax

Liked this story? Get top stories in your inbox each week from Environment! Sign up now »