Additionally, if the amount of permits are given out based on previous carbon emissions (as opposed to some standard like X tonnes of CO2 per MWh generated by a power company) the system ends up penalizing those that already reduced their emissions. Such a system would then create perverse incentives to emit more carbon now in the hopes of squeezing out more free permits in the near future. That’s a lot worse than nothing.

While a tax may not be politically feasible at this time, a non-crooked cap-and-trade system isn’t either. The only way they will become feasible is if we shift the terms of the debate to that point whether it’s not a question of whether we will adopt some system to reduce emissions, but rather which system we will adopt.

Precisely. The tweaking will be performed by whichever members of Congress have been, er, ah, “incentivized” the most. With the incentive only slightly more delicately delivered than the stuff in Congressman Jefferson’s freezer.

Doesn’t that trouble you in the slightest?

“the important thing is to get something ”

Most adults realize that a badly designed something is not always better than nothing.

The question is: Does Cap and Trade pass muster because it’s better, a compromise, or easier to water down?

As Ezra Klein put it:

“That, at least, is the difference in a perfect world. There’s also the argument that a tax is, in theory, simpler, and less likely to get mucked up with exemptions and off-ramps and so forth. For a good discussion of the relative merits, see this roundtable from the Bulletin of Atomic Scientists.”

I simply believe that a Tax would be easier to monitor for fiddling. The more complex the plan, the more Congress can fiddle away and not be heard.

Then again, I don’t know how to play the fiddle.

It seems like kind of a perverse outcome, at least in theory, and certainly wouldn’t help the environment. Though in practice this doesn’t happen with currencies (much), so there’s no real reason to expect it would with permits, but its something to consider.

IMO, like a lot of what’s getting published at the once great WSJ, this article/opinion piece produces more smoke and confusion than it does fresh information or new understanding.

I would argue that internationalizing taxes is much more straight-forward than a cap-and-trade system. You just have to add tariffs to imports from countries with lower carbon taxes equivalent to the difference. (The WTO already allows this sort of thing is already done for VAT taxes.) Allowing permits to be traded internationally lowers the standards of the system to those of the countries with the worst cap-and-trade systems.

For example, if one country issues permits for dubious carbon offset programs, those questionable permits could become traded around the world. Even in the best case, international trading in carbon permits would be similar to trying to have a world currency which every government is relatively free to print.

The main argument against cap and trade though, from a business perspective I would imagine is the amount of uncertainty it introduces into the system. Prices of offsets will fluctuate. If they end up functioning anything like natural resources, they could even fluctuate wildly. This makes it difficult to make rational investments in future carbon reductions. This might also tempt some governments to issue more permits if prices spike too high. A tax can be set to a fixed level or maybe to a level that increases at a known gradual level over time. This makes is much easier for businesses to plan ahead.

(I made this argument more fully in my infrequently updated blog: http://nofreelunchblog.blogspot.com/2009  /03/on-reducing-carbon-emissions.html)

Why wouldn’t they arbitrage carbon taxes in the same way?