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Glenn Hubbard favors tradeable permits over a carbon tax
Here is the scoop. John Tierney, citing Ron Bailey, disagrees; I score this one for Tierney if only on public choice grounds. Key argument:
The prospect of a cap-and-trade system in America has already set off a lobbying frenzy in Washington by industries hoping to write the rules to their advantage. Given legislators’ eagerness to please their hometown industries, it’s easy to imagine them being just as generous as European politicians. By contrast, a carbon tax would be more straightforward — simpler to establish and enforce...
Read Greg Mankiw as well.
Posted by Tyler Cowen on May 31, 2007 at 12:36 PM in Economics | Permalink
Comments
like ray kurzweil mention that double-exponential growth in technology would bring us nearer to a super technology machine which involve all humankind knowledge with a cost of refrigerator. This would give consequences that we might have a chance to have a clean technology with minumum cost. What we might inclined to do now, is to urge the innovation. In this case cap and trade system looks better then carbon tax. Incentives for the inventor should be larger than incentives and comfortness for the company
Posted by: garisgaris.wordpress.com at May 31, 2007 1:21:59 PM
garisgaris,
Why would all human knowledge costing the same amount as a refrigerator translate into us having a reason to invest in environmentally friendly energy production? This seems to amount to nothing more than faith in the arrival of a magic bullet technology.
What will give incentives for innovation are policies that will actually make producing carbon emissions very costly. Trading does not do it unless caps are very restrictive, and caps are not likely to be restrictive because NOBODY has a short or medium term economic incentive for demanding caps. For the same reason any actual tax will likely not be very restrictive.
If there is the political will to impose a sufficiently restrictive tax system then there will in all likelihood be enough political will to impose a sufficiently restrictive cap. Thus, it is not obvious that a direct tax is a better way to go than a cap. What we need to know more about is the relationship between the two alternatives and generating political will.
Posted by: aaron_m at May 31, 2007 2:47:33 PM
Forget the carbon taxes and tradeable permits and all that crap. Just stop subsidizing transportation.
- Josh
Posted by: Wild Pegasus at Jun 1, 2007 7:04:50 AM
I prefer a tax, but it is more complicated than most of us like to admit and probably not politically feasible.
1) A sudden shift in the tax burden is not good, so we'd need to create credits for certain businesses and industries that may fade with time. We also need to lower income taxes and make them much more progressive to make up for the regressiveness of a consumption tax.
2) The effects are more amiguous than we like to think. While in the long run, some people will relocate, buy more fuel efficient cars, make less trips, that doesn't necesarily mean fuel consumption will go down. It may very well go up due to higher prices!
Posted by: aaron at Jun 1, 2007 9:09:29 AM
Point 1 applies equally, if not more so, to the capping system. I would say it is an even greater weakeness since we are much less likely to address the rebalancing of the income tax structure to smooth the transition and prevent the poor from bearing a greater amount of the tax burden.
Posted by: aaron at Jun 1, 2007 9:16:33 AM
To say that the cap-and-trade system is market based is at least patially misleading. While the demand sides looks like a market, the supply side is ultimately a regulatory fiat, and so, even if indirectly, the price of emission is dictated by regulation.
A tax reaches the same result, far more transparently.
Posted by: Cyrus at Jun 1, 2007 9:45:53 AM
You can forget either option. Seriously, either option means much higher prices for gas and electricity, not to mention higher prices for any good or service whose production relies on gas or electricity. Politically, therefore, neither option is possible, and all you should know that. We are already trying to pass laws that figuratively hang oil company executives for high gasoline prices.
What planet do you guys live on?
Posted by: Yancey Ward at Jun 1, 2007 10:03:24 AM
I may be completely naive here, but I believe it's possible to sell a carbon tax as a revenue-neutral "carbon feebate." Any money collected is returned on a per-head basis to every legal resident.
That way you can make a not-entirely-disingenuous argument that it's not a tax. And secondly the average person won't see any net change in their disposable income: you'd just add, say, $600 per person/dependent to the standard deduction to match a buck-a-gallon increase in gas prices.
Posted by: Frank at Jun 7, 2007 2:58:07 PM
all you should know that. We are already trying to pass laws that figuratively hang oil company executives for high gasoline prices.
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