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Post by Hornblower on Aug 3, 2009 15:57:09 GMT 10
Carbon Tax v Carbon Trade is generally too narrow for a good debate, but the distinction is very useful to understand either when choosing a model to run as a pro-environmental controls case (Deep Green or Sustainable Development.) www.cosmosmagazine.com/features/print/2874/why-a-carbon-tax-betterIn this article, a person who is certainly not related to me points out some of the key distinctions between Carbon Tax and Carbon Trade, suggesting Tax is much more useful. These suggest that a Carbon Tax might be an interesting model to run instead of Carbon Trade the next time you are asked to propose some sort of emissions control. Likewise, it highlights a number of flaws in a Carbon Trading system. Some of the key ideas are: -Carbon Tax allows for taxation revenue to be used to allow government to direct clean research & development, an area where there is no reason to assume market forces alone will be sufficient to succeed in fixing the problem. In contrast, revenue from Carbon Trading is lost - in the pockets of brokers. -Carbon Tax gives real pricing certainty to businesses, allowing them to plan more effectively. IN contrast, cap & trade does not guarantee a price, and makes it hard for business to plan. Examples show implementation, generating a fair price, has been difficult. Thoughts? -_V
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Post by smartarse on Aug 9, 2009 12:12:19 GMT 10
Great post Victor!
I think in theory the 'tax vs trade' debate is sufficiently complex to allow for a good debate, i've seen the praxis (including a Worlds GF!) prove otherwise.
But this is an interesting issue, and again Victor is right to say that its a useful thing for people to think about in the context of forming models for debate.
While I think the author of the article - who is in no way related to Victor - makes a number of valid points, there are some clear problems with the comparison.
Firstly - the idea that because of "political realities" the protential revenue from ETS is lost because of compensation to individuals/industry, but somehow the revenue from a tax would be immune to those "realities" is naive.
The same rent seeking from companies and pissing and moaning from individuals would accompany the introduction of a straight tax and no reason is offered to suggest otherwise.
However, at least in an ETS there are measures calibrate the impact - firstly under an ets individuals are not directly affected, and there are only about 1000 businesses nationally that are directly liable - so the red tape burden on business is less than a tax on everyone.
But secondly, the ETS allows for purchase of credits (internationally or domestically) to provide options for how to meet the permit requirements - with a straight tax there are no options.
Thirdly, a tax does not ensure any cut in emissions. This is a crucial point - without a guarenteed cut we can't know that we will actually cut overall emissions (not just reduce their rate of growth) and that has an impact on international negotiations (if developed countries can't make clear commitments to targets than why will developing countries make any binding commitments?).
Finally, and its a minor point, the article suggests that the sectoral coverage of trading schemes is too limited, but a tax would be universal. The only major industry excluded from coverage of the proposed Australian scheme is Agriculture. Yes its a big sector, but its exclusion was based on the tremendous difficulty in establishing fair accouting methodologies for emissions from agriculture. I don't see how creating a tax answers the question of "how to you calculate the liability of an individual farm?" when we couldn't do it satisfactorial when desiging the ETS.
So overall I still think an ETS is better than a tax, but the real problem of an ETS is that its so complex that there are plenty of ways of screwing it up through poor design. Thats a serious issue, but a tax (while less complex) is not immune to that problem either.
One other issue that is rarely rasied by anyone in this debate is the need for a 'full set of markets' to compliment a carbon market. I don't have time to talk about that now, but maybe someone will remind of it later and i'll try to post on it. But in short carbon is not the only environmental 'externality' - biodiversity is another, and internalising one, without internalising the other can have hugely perverse impacts.
But more on that later!
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