<p>The <a href="http://www.theglobeandmail.com/">Mop & Pail</a>, in all its infinite wisdom, neglected to print my
brilliant reply to Deryk King's opinion article, "<a
tax or cap and trade?</a>". So I've decided to print my reply where it will get even more readers -- yes, right here,
on my blog.
In "Carbon tax or cap and trade?" (Business, Feb 8 2008) Deryk King expresses several fallacies in the carbon tax
vs. cap and trade debate. First, he says that setting a carbon price is a game of "not too high...not too low".
Both cap and trade and carbon taxes require a careful policy choice; only a few paragraphs later, Mr. King mentions
the disastrous fall-out of the European Carbon Trading System (ETS) because the cap was set too high.
Mr. King later alludes to the income problem: with both auctioned credits (the flavour he rightly proposes as the
best variety of cap and trade) and taxes, the government has a new stream of revenue. With both, this money must be
either spent, or used to reduce other income sources. In both cases, a revenue neutral solution is best.
Mr. King's comparison to the highly effective sulfur cap and trade markets of the 1980s is also dubious: sulfur is
an incidental side-effect of many industrial processes (mostly coal burning); carbon dioxide is a chemically
necessary result of energy extraction from fossil fuels.
Finally, the business case. Carbon markets set an unpredictable price on carbon. In times of economic downturn,
the price will plummet and the incentive to reduce pollution will disappear. If the government sets the cap too
low, the price could shoot sky-high, and require careful policy intervention. Carbon taxes provide a steady
schedule for the price on carbon, and a steady, predictable incentive towards reducing emissions.
<p>Since writing this, I've decided that the implication of feature-equivalence between auctioned cap and trade and carbon
taxes is incorrect. There is one important place where carbon taxes differ: pure sequestration projects, like the
recently defunct <a href="http://www.planktos.com/">Planktos</a>, who plan(ned) to seed the ocean with iron filings --
which happen to be the limiting reagent in algae growth -- so that an algae bloom would form, and then sink to the
bottom, allegedly safely sequestering the carbon. There are many other, less zany possibilities, and they would go
unfunded under carbon taxes, unless you either subsidized them out of band, or allowed them to offset taxes, in a sort
of "tax and trade" system. </p>
<p>Yes, I just coined a term. Even though I stole it from a private email with <a href="http://wargle.blogspot.com/">Fergal</a>.</p>
In other news, Clare and I are off to NYC for the (long) weekend. Overnight bus there, should be fun. Hopefully we can
sleep. If you're one of my New York readers, let me know so I can come say hi. Not that I have any New York readers,
but I figure the possibility might be self-fulfilling. Toodles.