Sunday, December 6, 2009

The Story of Cap and Trade

I know there is a lot of news and talk about the pending cap and trade legislation but I suspect that many people do not really understand it. This cartoon presentation simplifies and explains how cap and trade works. I certainly don’t agree with the political perspective of this video, but even people with whom you disagree can tell a truth sometimes or help shed light on an issue. Try to watch this video without gagging over the left-wing rhetoric. It does a good job of explaining two of the majors defects in the current cap and trade proposal: give away of credits and off sets.

Since the climategate scandal revelations of scientific fraud, I am not now convinced we need to address global warming at all. Before we address it, we need to be sure it is a problem that needs to be solved. For me, Cliamategate threw into question the severity of the problem of man-made global warming. I need to again be convinced that man-made global warming is a problem before I am ready to support efforts to fix it.

If the theory of global warming is correct however, we must address it. If it is true, if can not be ignored simply because it is inconvenient. Assuming for a moment that the theory is correct, I think the preferred method of addressing the problem is a revenue-neutral carbon tax. Just as a subsidy can lead to the production of more of something by reducing the cost of that something to the consumer, a tax can result in less of something by increasing the cost of that something. If we put a tax on products that produce carbon people will choose to use less of those products and we will have less carbon emission. If gas cost more, people use less of it. If gas cost more, battery power and hybrid vehicles will comparatively cost less. To offset the cost increase in taxing carbon however, we should cut the income tax by every dollar raised by a carbon tax. I would prefer to tax carbon more and tax income less; this will produce less carbon and more income.

Unfortunately a carbon tax has never been given serious consideration and cap and trade has. In theory, cap and trade could work. Just like a carbon tax, cap and trade is also a tax but is not as direct. Like a carbon tax, a cap and trade system is designed to change consumer behaviour by attaching a cost to carbon emission. While I would prefer a carbon tax to a cap and trade system, cap and trade is much to be preferred over a system of regulation that mandates carbon levels for each producer of carbon emissions. Incentivizing desired behaviour is preferable to the use of force to change behaviour. I would much rather use the tax structure and markets to solve a problem rather than use the police. In theory cap and trade is sound. Cap and trade was the way we curtailed the pollutants that caused acid rain. Acid rain was a serious problem that was brought under control by the very same method we are proposing to address carbon emissions.

Cap and Trade can work in theory, but unfortunately the devil is in the details. Cap and trade will not work if we give away too many credits and if we have a fraudulent system of offsets. Also, to avoid cap and trade being a huge tax to simply grow government, cap and trade should be revenue-neutral. Revenue raised from the sell of credits should be used to reduce personal income taxes and in order to put more money into the hands of the people in order to help offset the increase energy cost and other cost of living that will follow cap and trade legislation.

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1 comment:

  1. One of the problems with scientific research is that it depends a great deal on government funding. As a result, researchers may be biased towards political views of who is in office to obtain funds. Or worse, researchers "create problems" and go after funding to "solve problems" that exist in their own minds. Back in my grad school days (80's) my thesis was on climate change and carbon in the atmosphere. My prof adviser was big into going after NSF funds because it was the "hot" topic of the day. And of course, you weren't going to get funding unless your research proposal somehow advanced research in this way. I'm not against government funding of research, but it does lead to abuses - of which there are many! Do I believe in global warming? Sure it happens, but don't believe the major global trends are really primarily the result of human activity or that we are headed to eco disaster in the near future.