[0xcde4c3db]

> carbon tax and dividend (the only truly market-based approach to limiting green house gas emissions)

I always heard cap-and-trade described as a market-based approach (by people who talk about the actual policy instead of just trying to vacuously demonize it). Can you briefly explain (or link to a good argument) how it fails to live up to that description?

[scythe]

It's beyond any human organization right now to know what the appropriate price for or cap on carbon is, which ti me, is the largest reduction that does not cause serious problems. But if the carbon price (tax) is too high, people will lose money, but life goes on -- capitalism is naturally equipped to deal with shortages by raising prices, so working in reverse, we can push the economy towards a shortage by increasing costs. By contrast, if the carbon cap is too low, production has to stop; you get larger shortfalls. So the legislature is free to act more boldly in setting prices. The comparison with sulfur markets for acid rain is often brought up, but the difference is that a shortage of sulfur credits would only affect a few industries and there are many substitute goods. In practice, carbon markets which have existed until today have had caps too high to effectively lower emissions, and I think this is because the legislators' legitimate fears of creating a carbon credit shortage and hurting the economy caused them to be more susceptible to corporate influence. By contrast, if the carbon price were too high, the negative effects would be milder, giving legislatures time to reverse them. This allows them to raise it in the first place more fearlessly.

Also, do note how many energy companies love C&T. Do you really think it's out of the kindness of their hearts?

[moultano]

Ideally it is, but it is more complex to implement, and complexity can create loopholes that undermine it. There's more opportunity for graft in how the credits are distributed.

[peloton]

This is right, but I'd also add that the benefit to cap and trade is that it's politically easier to do (since it's not called a "tax").