The New York Times has a story today about John Dingell’s change of heart on climate policy. The auto industry’s point man in Congress now favors a stiff tax on carbon emissions. There has been an undercurrent of suspicion that he has rallied to the least popular approach to the problem in order to discredit it. The Times’ Leonhardt gives Dingell the benefit of the doubt.
What I didn’t like were Leonhardt’s claims that a carbon tax “is the climate solution that economists and environmentalists have long dreamed of” and that the only alternative is cap-and-trade, giving away emission permits to longstanding polluters. The third approach, and by far the best, is setting up a permit system and auctioning off each one of them.
There are two reasons why permits rule. (1) There is great uncertainty about the future relationship between carbon prices and pollution levels (long run elasticity of demand for fossil fuels). Taxes place the burden of this uncertainty on the environment (the amount of pollution); saleable permits place it on costs faced by energy users (fossil fuel prices). (2) Politically, if we go the tax route, we end up in a discussion about taxes. That’s why skeptics thought Dingell might be boring from within. If we center the policy on permits the debate is over how much greenhouse gas emissions we are willing to tolerate. That’s the discourse we need.
Folks, this is a very important issue at a very important time. In the next year the contours of the national debate over climate change policy will be set. Huge ecological consequences – and gobs of cash – are on the line. It is essential to start off in the right direction. I’d like to see enough clarity and truculence in the activist community that journalists are forced to take notice.