In a new research study sponsored by the American Consumer Institute, Dr. Robert Shapiro, former Undersecretary of Commerce for Economic Affairs under President Clinton "finds that carbon taxes would be a better response to the risks of global warming than emissions caps and tradable permits (commonly referred to as cap-and-trade)." Dr. Shapiro states that carbon taxes "are much less vulnerable to evasion and market manipulation, providing a more stable and transparent system for consumers and industry alike." Dr. Shapiro points out that carbon taxes "do not create the price volatility and administrative problems associated with cap and trade." Quotes from Executive Summary of Study.
Pricing carbon efficiently and equitably
Carbon Tax Center
Pricing carbon efficiently and equitably
Evan says
Time for another joint Economists’ Statement on Climate Change?
James Handley says
Had the pleasure of meeting Dr. Shapiro at CleanSkies.TV today for a videotaping of a roundtable on carbon taxes. He’s a terrific advocate for carbon taxes.
He made several important points very well:
1) The only reason <em>anyone</em> is talking about cap and trade now is because that’s what the US, mostly at Al Gore’s urging, built into the Kyoto treaty. Gore has abandoned cap and trade and is now calling for a carbon tax to replace other taxes. Why? Caps aren’t working. For example, we’re seeing that in the EU, the net reductions under a cap have been negligible and at great cost. And the exemptions (eg coal power plants in Germany) are so large as to make the cap meaningless.
2) China and India have stated clearly that they are not going to participate in cap and trade. But they might find it useful to participate in a carbon tax system.
3) Price spikes under a quantity based system (cap), due to any number of unforseen events — e.g., an extra hot summer or an extra cold winter driving up enegy demand — could cause a cap and trade system to collapse. A price based system (tax) provides predictable increases. We tried quantity based control of the money supply until the 70s which created a lot of instability and inflation. Since we (actually Fed chair Paul Volcker) switched to price based (interest rate) control, we got a more stable economy and got inflation under control. The same lesson applies to cap and trade (quantity based) and carbon taxes (price based).
4) Hitting a particular target in a particular year (the main advantage of a cap) is much less important than driving long term emissions downward (which is the main advantage of a tax).
5) We need incentives to push new technology, both a cap and carbon taxes would do that, but taxes would be more effective because they set clear price expectations.
6) Candidates are talking vaguely about cap and trade now; intended to convey the message that they’re serious about climate policy. But basically Rob thinks cap and trade is a "place-holder" for a more detailed discussion of all the policy options, which will happen after the election.
7) Cap and trade systems are much too easy to "game."
Thanks Dr. Shapiro.
Check out Cleanskies.TV online. The roundtable discussion will start running on 4/23.