Cap and Trade is Really a Tax

January 22nd, 2009

Posted by: Roger Pielke, Jr.

Speaker Nancy Pelosi (D-CA) has not yet settled on either her plan for cap and trade legislation or the purpose of such legislation. In the San Francisco Chronicle she says:

The speaker disappointed environmentalists when she said earlier this month that she may not bring climate change legislation to the House floor this year because it may lack the votes needed for passage. “I’m not sure this year, because I don’t know if we’ll be ready,” she told Capitol Hill reporters. “We won’t go before we’re ready.”

But in the interview Wednesday, she shifted her stance, saying she plans to move the bill this year. She said she hopes to hold a vote before December, when climate negotiators gather in Copenhagen, Denmark, to work on a successor to the treaty many countries adopted in Kyoto, Japan, in 1997.

“I believe we have to because we see that as a source of revenue,” she said, noting that proposed cap-and-trade bills would raise billions of dollars by forcing major emitters to buy credits to release greenhouse gases. “Cap-and-trade is there for a reason. You cap and you trade so you can pay for some of these investments in energy independence and renewables.”

If the point of the policy is indeed to raise revenue for investing in innovation, then we can do a much better job than by creating a bloated cap and trade program by simply establishing a low carbon tax, as Chris Green and I argued recently (PDF). Politically, Pelosi’s continuing fickleness on cap and trade does not foreshadow a successful legislative effort.

5 Responses to “Cap and Trade is Really a Tax”

  1. jae Says:

    I say we let the marketplace make the calls for the development of “alternative energy.” Necessity, not the government, is the mother of invention! Since there is no real proof yet of any problems being caused by CO2, it is premature to do anything.

    However, IF some type of government “forcing” is deemed necessary by the powers that be, I agree with Roger’s article. Cap ‘N Trade is still a tax, but potentially a corrupt one. Its only advantage over the straight tax appears to be that it a sneaky way to get a tax–its impact is hidden from the general public, many of whom still don’t understand that the gov. can’t really tax industry. And the true impact isn’t even known ahead of time. I also agree with the straightforward tax, because it would also keep more of the greedy middlemen from stealing much of the money and would not be subject to all the creative scams and enforcement bureaucracies that would be associated with cap and trade.

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  3. tarpon Says:

    Well I say it’s actually rationing of energy. Do you actually expect the total energy available to be expanded? No, it will result in ever higher prices.

    Pay more in taxes to the government, so government scientists can fake the data, and pretend to control the climate. The perfect scam.

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  5. stan Says:


    OT, but important — your father outlined his difficulties with Gavin’s unwillingness to act in accordance with scientific expectations. Gavin’s extraordinary measures to avoid accountability and obfuscate the issues have been detailed extensively by others, as well. His responses to the exposure of the dreadful quality control problems for temperature data boggled the mind.

    Why does he have any credibility left? Why should the people who employ him to speak for them have any credibility?

    How does the scientific community expect to maintain credibility over the long term when people like Gavin and Michael Mann have such prominence? If scientists don’t police the mess being created, they are going to find themselves splatted with what hits the fan.

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  7. docpine Says:

    If people want success in some endeavor, there has been an expression- KISS for Keep It Simple, Stupid. Successful public policy is not about feathering the nests of interpreters and third parties, but establishing the closest linkage possible between desired behavior and rewards.
    Can someone explain the perceived advantages of cap’n'trade over a tax?

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  9. danl Says:

    docpine, jae:
    The purpose of cap and trade over a carbon tax is that gives businesses a financial incentive to reduce their emissions, as opposed to simply the disincentive of polluting. This is established by the emissions trading– those who pollute under the number of permits they own can trade their excess permits for money.
    Much of the original framework of emissions trading (from the 1970s and 80s- See Montgomery and Dales) had economic proofs that cap and trade is the most efficient, i.e. least-cost, method for meeting a desired emissions cut.
    This is not to say that cap and trade does not have problems, specifically when applied to CO2. Just wanted to clear up a theoretical formulation most people seem to miss.