What is true is that any method for allocating allowances and/or allowance auction revenue, in the context of cap and trade, could be applied equally well to carbon tax revenue, and vice-versa. For example, if the ACES allocation formula were applied with a carbon tax, then firms would effectively only pay the tax on the balance between their taxable emissions and their free allocation — or would derive a net profit if their emissions were less than their allocation.

I believe that the real crux of the cap-versus-debate, and the fundamental reason why cap and trade has become “the only climate program that has a chance of passing now” (Eric Pooley’s words), is the allocation issue: “Who gets the money?” The universal political perception is that cap and trade is intrinsically synonymous with free allocation (grandfathering), while carbon taxes are synonymous with revenue recycling (“wealth transfer”). But this is a false perception, and allocation issues should not cloud the more fundamental issue of whether price or quantity instruments would be a more economically efficient approach to greenhouse gas regulation.

Carbon-tax advocates should make it clear what their priority objective is: promoting economically efficient, price-based regulatory instruments, or promoting a particular allocation methodology? For example, considering the U.S. SO2 trading program, which of the following two regulatory options would have been preferred: (a) an SO2 emission tax, with tax revenue refunded according to the same proportionate allocation formula that is currently employed for allowance allocation, or (b) cap and trade with revenue recycled directly to households? (The SO2 program was enacted with the expectation that allowance prices would be in the range of $650-$850, in 2000 dollars, and a tax at the lower end of this range should have been more politically palatable than cap and trade, considering the benefit of price stability. By contrast, the actual market under cap and trade has been in the range of $100-$200 for most of the program.)

Actually, a proper framing of the issue should not make it necessary to choose one objective over the other as a higher priority, because the two issues are entirely separable. The choice of whether to employ grandfathering or revenue recycling (or some other allocation alternative) can be made entirely independently of the choice between a carbon tax and cap and trade. The linkage between the two issues exists only in politicians’ minds, and by keeping the two issues linked, the carbon tax advocacy only helps to maintain cap and trade as the only politically viable climate program.

Re the tax simplicity question: I see the taxing part as being relatively simple, the rebating part as being a potential nightmare. Probably an order of magnitude less complicated than cap and trade, but still, not “simple”.

I am worried that this is turning into a “divide and conquer” situation. Will a carbon tax rise quickly following failure of a cap and trade bill, or will the politicians be so bruised that they want to shelve it all, and capitulate to the deniers? I can, for example, imagine public anger being raised by Copenhagen – Americans are notoriously not keen on being “told what to do” by the rest of the world.

Whereas in Europe we are seeing that a cap and trade system doesn’t preclude a later introduction of a carbon tax. I worry that it is more important to do something now, something that embeds the concept of acting against climate change into the economy, than worry about getting it perfect first go.

As an alternative, could we not trial both or in fact several variations (eg in different states)? Then there would be more hard data to support the decision. The scientific method in fact… http://www.newscientist.com/article/mg20327251.000-beware-of-common-sense.html

Three points about the possibility of a simple carbon tax:

1) France generates nearly all electricity from nuclear; its exemption of power generation from a carbon tax wouldn’t be a spurious evisceration of the proposal and is certainly not comparable to the scope and kind of game-rigging (offsets, free allowances, subsidies, etc) built into the 1400-page Waxman-Markey bill.

2) In drafting Waxman-Markey, the Energy & Commerce Committee has found a way to impose a tax and to appropriate the funds to its favorites (via free allowances). And the bill is about five parts regulation to one part cap-and-trade. A carbon tax would presumably at least be subject to more of the usual checks and balances (e.g., the Ways & Means and Appropriations Committees) and could largely supplant regulations.

3) Prominent Republican proponents of a carbon tax (e.g, Bob Inglis R-SC) only support a revenue-neutral carbon tax. Many Hill-watchers doubt that W-M will pass the Senate. We’re laying the groundwork so that after the dust clears, Congress can have discussion of a bipartisan carbon tax.

To achieve the reductions needed, a carbon tax will need to rise briskly. Rep. Larson’s bill builds in an annual rate increase to meet GHG emission reduction goals. Recycling revenue to households will build political support (as both the tax increases and the funds flowing to households also rise) for a program that will need to be sustained for at least two generations. So “keeping it simple” isn’t just a political necessity to gain Republican support now, it’s a key to long-term success.

We’ve seen signs that a simple, revenue-neutral carbon tax can pass and gain political support: Premier Campbell enacted a revenue-neutral carbon tax in British Columbia and was re-elected with a strong majority. His success, and the almost universal popularity of Alaska’s permanent fund — which distributes revenue in a similar way to a revenue-neutral carbon tax — give me hope that a simple, revenue-neutral carbon tax is politically possible.

First, I find I must agree with Mr Pooley about the Carbon Tax “simplicity” argument’s lack of absolute veracity. Look at France! Introducing a Carbon Tax, but not on electricity… And by extension, I can all-too-easily imagine the Congresslackeys making sure that carbon tax revenue refunds go to whomsoever said Congresslackeys deem to be deserving.

But this leads me to disagree with Mr Pooley about there being “a big game going on inside the stadium, but the carbon tax proponents are outside in the parking lot, dreaming…” As far as I can tell, the game is rigged, with the Shoeless Joe Jackson of folklore and legend serving as referee.

From the news, I see Congresslackeys eviscerating Climate Protection just like they are doing to Healthcare Reform. (Like quashing the Public Option, without which healthcare insurance will rapidly become inordinately expensive.)

It is high time to get serious about doing what is right because it is the right thing to do, to Hell with “Political Reality”.

I am beginning to get the feeling that bowing to “Political Reality” means knuckling under to Bigbuck Money Whisperers. The time could be coming for everybody to get out the torches and pitchforks.

Of course, well-funded Astroturf campaigns are already handing out some torches an pitchforks along with misinformation, so what is at stake could well be not just climate protection.

Thanks for your comment, and for giving us a close read (or two). I too, appreciate Pooley’s professionalism and respect. I hope we and others will have more conversations like this one.