Problem with cap-and-trade is substance, not style

March 11, 2010

Washington is obsessed with optics and messaging. Indeed, U.S. proponents of limiting carbon emissions hope rebranding their “cap-and-trade” proposal as “pollution reduction” will boost the flagging proposal on Capitol Hill. But the real problem is the product, not the packaging. There are far more politically feasible and economically effective ways of dealing with climate change.

1) As it is, the Obama administration and Capitol Hill Democrats are late to the name-change game. Republicans have already effectively rebranded “cap-and-trade” as “cap-and-tax.” And as much as Washington insiders argue that America is woefully undertaxed, the American public heartily disagrees. Higher taxes are still political poison. Especially ones that hit the broad middle class. And especially during a time of historically high unemployment. Americans aren’t stupid. The whole point of a cap-and-trade plan is to eventually make carbon more expensivee. And that “cost” or “tax” or “pollution reduction” will eventually come out of their pockets.

2) Whatever you call it, an overarching, national cap on carbon emissions is going nowhere in the Senate after passing narrowily in the House. (The recent scientific clash over climate change data hasn’t helped its prospects in the upper chamber.) A possible Plan B is a gradual, sector-by-sector approach to cap-and-trade starting first with electric utilities and eventually expanding to various manufacturing sectors over the decade.

3) But that misses the point. The core political problem here is not how carbon is priced or what the method is called, but rather what is done with the revenue. The original Obama plan was to take some of the money from auctioning carbon permits and devote it to clean energy research. The rest would, temporarily, pay for middle-class tax cuts. But the suspicion has lingered that the money would eventually be funneled toward healthcare reform funding.

4) For the public to accept a rising carbon price, the money must be permanently returned to the public. Gaining momentum is a bipartisan plan where 100 percent of carbon permits are auctioned with 75 percent of the revenue returned as “dividends” and 25 percent invested in energy research. And in his new book, 2012 Republican presidential frontrunner Mitt Romney echoes an Al Gore idea of a carbon tax whose revenues are used to offset individual payroll taxes. Indeed, there are indications that key anti-tax crusaders would be willing to accept a carbon tax plan if the potential revenue was fully refunded in some fashion.

So forget the rebranding. Time to launch a new product.

3 comments

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Returning the tax to the taxpayers would completely defeat the purpose of it. The idea is to make carbon-based energy more expensive so people buy something else. Offering it as a rebate to make clean energy more affordable could work.

The trouble with the new “pollution reduction” name is its innaccuracy. The C&T experiment called the Kyoto treaty showed that it has zero impact on carbon emmission.

Yes! A revenue-neutral carbon tax is absolutely the best means by which to stem the tide of global climate change.

[...] with cap-and-trade is substance, not style (Reuters) Filed under Cap-and-Trade, Carbon Tax, Editorial, News Comments [...]

Yes, use the most powerful economic medicine available — prices — to dislodge the “incumbent technologies”: fossil fuels. For example, as long electricity can be made from coal at a fraction of the cost of renewable alternatives, low-carbon energy alternatives can’t gain a foothold.

Cap-and-trade is a hidden, volatile and regressive carbon tax, which Wall St would set and collect.

A revenue-neutral carbon tax is explicit, predictable and with revenue recycling as you suggest, it’s progressive. See http://www.carbontax.org.

Bored at work…

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