Putting a Price on Carbon: The Metaphor
33 Pages Posted: 1 Sep 2013 Last revised: 13 Feb 2014
Date Written: February 11, 2014
Abstract
This Essay analyzes the characterization of both pollution taxes and so-called cap-and-trade programs addressing greenhouse gas emissions as policies that “put a price on carbon,” a characterization that has come to dominate both policy discussion and much modern scholarship on environmental instrument choice. It shows that the rationale for characterizing cap-and-trade — a quantitative rather than a pricing mechanism — as putting a price on carbon suggests that analysts should likewise treat traditional regulation as a mechanism putting a price on carbon.
Treating “market-based mechanisms” as uniquely putting a price on carbon reflects and perpetuates a tendency to see markets and government as antonyms, with markets operating through price and governments operating through coercion, even though markets and governments are intimately intertwined and use a variety of tools. This Essay shows that an informed third generation debate about instrument design and instrument choice should focus on understanding prices’ limits as a coordinating tool, including appreciation of potential conflicts among the values price is thought to serve.
Keywords: market-based mechanisms, cap-and-trade, emissions trading, instrument choice, pollution taxes
JEL Classification: K32
Suggested Citation: Suggested Citation