It has to be said: the leftist assault on the very idea of capping carbon emissions stems from deep confusion over what a cap consists of, how taxes would be used, where the leakages lurk, and what effect all these things have on who pays what. Every now and then, I am embarrassed by the public face of the left; this is one of those times.
This diatribe has been provoked by a new wave of silliness in response to tomorrow’s international day of action on climate change. You can read about it on Common Dreams, and you may also butt up against it in your own community, as I have in Olympia. (A fake issue of our local daily newspaper, dubbed The Olympiun, has several articles hyping the anti-cap line.) It’s a veritable anti-cap convergence. Read on for the particulars.
In a nutshell, here’s what the anti-cappers say. 1. A carbon cap means “carbon trading”, and “carbon trading” means that there will be no real emission reduction, because carbon permits will be traded for pseudo-reductions in agriculture, forestry and foreign investment projects. 2. “Carbon trading” is typical neoliberal claptrap, market idolatry, a scheme to pad the pockets of speculators, the next bubble primed to burst. 3. The solution is a carbon tax, which has nothing to do with market idolatry, guarantees real reductions, and makes the true climate villains pay through the teeth.
It’s all wrong, every bit of it.
1. A carbon cap requires a system of permits: you need a permit to emit a certain amount of carbon. Cap the permits and you have a carbon cap. There is nothing the matter yet. The problem comes with all the bells and whistles. (a) Instead of capping carbon upstream at its source (the extraction or import of carbon fuels), you cap it industry by industry. Then you have the coverage problem: which industries or uses are covered by the system, and which are not. The less coverage, the more leakage. (b) Instead of insisting on a permit, you give emitters the alternative of purchasing an “offset”, a promise (hope) that an equivalent amount of emissions will be averted by buying into some land use scheme, a foreign investment, etc. We can expect quite a bit of leakage here too. (c) Instead of auctioning the permits and rebating the revenue to households, you could give them away. Since the value of the permit is there regardless, it will be passed along to consumers, while the recipient of the freebie enjoys windfall profits.
A perfect carbon cap would have none of these defects, and the more coverage, fewer offsets and more auction we can get, the better.
2. A carbon permit system, with a cap on total permits, is what economists would call a quantity control. A tax is a price control. The first, if it can contain leakage, directly controls carbon emissions. The second relies on markets to arrive at whatever emission reduction occurs. Which one is more market-dependent? Moreover, a truly upstream cap would apply to only a handful of energy companies who would have little need to trade their permits between one another. It would be nearly all cap and very little trade—kind of like a cap on fishing permits to protect fish stocks.
3. A perfect carbon tax would be better than a deeply flawed cap (e.g. Waxman-Markey-Boxer-Kerry), but who says our actually existing political system will produce a perfect tax? All the same problems can crop up. (a) A carbon tax can be set too low, as is the case, for instance, in the recently announced French tax. (b) It can have only partial coverage, taxing some activities but not others. (c) It can reduce your tax liability in return for your contribution to an offset, with the additional leakage that implies. (d) It can funnel tax revenue to whatever the policy-makers want: nuclear power plants, biofuels, even coal companies. Nothing about the idea of a tax prevents this.
In the end, the choice of tax vs cap comes down to two things. (a) Since we don’t know how high a price it will take to bring carbon emissions down to a sustainable level, should we set the level and later find out about the price, or set the price and later find out about the level? (b) Can we have a more rational public discussion about what carbon cap to set, or what tax?
You tell me, what’s “leftist” about denouncing a carbon cap and demanding a carbon tax?