Tax on Carbon Emissions Gains Support
Sunday, April 1, 2007
As lawmakers on Capitol Hill push for a cap-and-trade system to rein in the nation's greenhouse gas emissions, an unlikely alternative has emerged from an ideologically diverse group of economists and industry leaders: a carbon tax.
Most legislators view advocating any tax increase as tantamount to political suicide. But a coalition of academics and polluters now argues that a simple tax on each ton of emissions would offer a more efficient and less bureaucratic way of curbing carbon dioxide buildup, which scientists have linked to climate change.
"We want to do the least damage to the growth of GDP," said Michael Canes, a private consultant and former chief economist for the American Petroleum Institute, who led a Capitol Hill briefing on the subject in late February sponsored by the conservative George C. Marshall Institute. Between a cap system and a carbon tax, "a carbon tax will be the much more cost-effective way to go," he said, though he added that there are other ways to reduce emissions.
Robert J. Shapiro, a private consultant who was a Commerce Department official in the Clinton administration, agrees. A cap-and-trade system -- involving plant-by plant-measurements -- would be difficult to administer, he said, and would provide "incentives for cheating and evasion." And the revenue from a carbon tax could be used to reduce the deficit or finance offsetting cuts in payroll taxes or the alternative minimum tax.
A carbon tax offers certainty about the price of polluting, which appeals to many economists and businesses. William A. Pizer, a senior fellow at the centrist think tank Resources for the Future and a former senior economist for President Bush's Council of Economic Advisers, estimates that the benefit-to-cost ratio of a tax-based system would be five times that of a cap-and-trade system.
"You're going to pay one way or another, whether it's a tax or a permit program," Pizer said, adding that while a cap would provide more certainty on how much emissions would be cut, "the consequences of being uncertain about emissions over any short period of time just aren't that serious."
Under a cap-and-trade system, the government would set an overall limit on emissions and allocate permits to emitters. If one plant reduces its emissions more quickly than another, it can sell its credits to the other emitter. A carbon tax would simply increase the cost of emitting each ton of carbon, which could then be passed on to consumers.
While Democrats have vowed to push through some sort of carbon dioxide control in this Congress, Bush has consistently opposed mandatory limits, so it remains unclear whether the United States will adopt any system before the next election.
Moreover, the fact that many economists back the tax approach is no guarantee that it will prevail over the five cap-and-trade plans already proposed in the Senate.
The complexity of the cap-and-trade system is part of its virtue for some politicians, since it may mask the system's impact on prices. Such a system also appeals to conservative lawmakers who like the idea of letting the market determine the price of carbon, while keeping revenue out of the hands of government. Some economists say it would channel capital to the most economically worthwhile projects first.
Environmentalists are split on a carbon tax. Fred Krupp, president of Environmental Defense, which is handing out baseball caps emblazoned with the slogan "Just Cap It" on Capitol Hill, called such a tax "an interesting distraction."
"It doesn't give us the guarantee the emissions will go down," he said.