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Cap or Tax to Solve Global Warming?

Dan Lashof

Posted September 14, 2007 in Solving Global Warming

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Someone has asked about carbon taxes at every public forum on global warming policy that I have participated in recently. This idea has been around for a long time, but has been largely dormant in policy circles since 1993, after the defeat of the BTU (energy) tax proposed by President Clinton as part of his first budget. Academic economists and columnists often argue that a carbon tax would be the most efficient and simplest way to address global warming and Rep. John Dingell, Chairman of the powerful House Energy and Commerce Committee has flirted with the idea publicly, raising its political profile.

I was asked about carbon taxes versus caps in an interview on E&ETV, which aired Monday. My answer was that discussion of a carbon tax is a distraction because it frames the debate in fiscal policy terms (How high should the tax be? What should be done with the revenue?) rather than keeping the focus on how much and how fast we need to reduce global warming pollution to prevent dangerous global warming.

I will add here that the claim that a carbon tax would be simpler than a cap on global warming pollution with allowance trading is based on comparing a theoretically pure carbon tax with no exemptions to cap proposals that are being debated in the real world. That’s not a fair comparison. It’s fantasy to think that an actual tax bill would be any simpler than an actual cap bill. In fact, the BTU tax was killed in 1993 after industry lobbied successfully for a bunch of exemptions, and then cynically lobbied to kill the whole thing because it was full of loopholes. One clever lobby shop went so far as sending blocks of Swiss cheese to Members of Congress.

There is no escaping the fact that the legislative process resembles sausage-making. But legislation to cap and reduce global warming pollution will at least be environmental sausage.


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DaveSep 15 2007 01:16 PM

Global Warming Conference in NH

NRDC is a sponsor of this climate conference October 12 and 13 in NH, organized by Clean Aair-Cool Planet ....

All of the candidates running for president have been invited to speak at a major global warming conference in Manchester October 12 and 13. From what I've been told its open to Rs and Ds - and each candidate is afforded solo stage time to communicate his (her) priorities on energy and global warming.

NH has communicated global warming as a priority in many ways this past year, right under the noses of the candidates.

Here are the top ten reasons why every candidate should show up:

A statewide poll showed 70% of likely Republican primary voters feel global warming is a serious threat and needs to be addressed (and most feel it is man-induced), while almost 90% of likely D primary voters feel the same way
164 out of 177 towns passed a town meeting resolution calling on the next president to require national greenhouse gas reductions in ways that protect the economy (of the 164 towns, a majority performed republican in 2004)
The governor & executive council signed a commendation thanking the 300 volunteers who made the resolution a statewide referendum.
More than 40 civic associations and 9 newspapers endorsed the resolution (which has been endorsed now by Richardson, Dodd and McCain)
Researchers in the science and economic disciplines came together for the first time and illustrated how inextricably linked local NH economies are to cold winters, and how northern communities will suffer from slushy winters.
College students marched from Nashua to Concord and others climbed to the tops of the Presidentials to make their point and send a message that global warming action must be a priority for the next president.
A spring conference on global warming and the NH forest economy drew a standing room only crowd of more than 300
Thanks to hundreds of civic-minded volunteers, more than 50 local energy committees have emerged from the results of the town meeting resolution. These people are not your every-day branded enviros: they are civic leaders and taxpayers.
Candidates are getting lots of questions and are talking about energy and global warming on the stump, and in some ways the retail politicking has helped candidates test their messages and reform a few policy directions. That said, the conference is the only chance between now and the primaries for candidates to really showcase their climate change and energy action plans with people for whom this is a priority (what people?-- see ## 1-8)
The upcoming conference comes at peak foliage season - so get up here and enjoy the season .... while we still can.

Dan RosenblumSep 16 2007 01:49 AM

A carbon does not need to be complicated and should not be made complicated. The last thing we need is a repeat of the BTU tax fiasco. Cap-and-trade, by contrast, is inherently complicated. Allowances have to be allocated or, if we're very lucky, an auction system will have to be created and operated. Market mechanisms will have to be created and standards set and implemented to ensure the integrity of the system. For more details, see the Carbon Tax Center's comparison of carbon taxes and cap-and-trade under "Issues" at

Dan LashofSep 17 2007 09:29 AM

Dan Rosenblum's argument is exactly the same as Mankiw's argument in Sunday's New York Times (I have added a link to the original post), but please point to an example of a simple tax bill actually getting enacted? In theory a cap bill can be just as simple as a tax bill. In practice both will get complicated.

Dawn LippertSep 25 2007 03:02 PM

I agree that both tax bills and cap and trade bills are likely to be complex, but it seems to me that the actual administration of a tax would be easier. I can't point to a simple tax bill, but the European system is a good example of a complex cap and trade bill. How would we avoid their pitfalls?

More importantly, a tax continually raises revenue to support clean energy RD&D & infrastructure development, as well as less well-off Americans. Government has the opportunity to redistribute the tax revenue to poor Americans who are likely to be most affected by a carbon tax (since fuel tends to be a larger proportion of their incomes). This would keep such a tax from being regressive, whereas there is no such mechanism in a cap and trade system (I guess I'm not convinced that a cap and trade system would pass with a revenue-raising auction for the allowances).

Also, I'm curious whether you think it would be easier to ratchet up a tax or ratchet down a cap, or whether both are equally politically difficult.

I agree that environmental sausage is better than no breakfast at all, but I am not yet convinced that the complexity and revenue issues favor a cap and trade system over a tax.

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