The House Erred: A Carbon Tax is Better than Cap and Trade

Abstract

The House in June approved a cap-and-trade system to control greenhouse gases (GHGs) and to reduce the risks of climate change. Although cap and trade has political momentum, a carbon tax is preferable because: 1. A carbon tax would work better in international commerce and would more effectively encourage the developing nations to join the fight against climate change. 2. Cap and trade is not the successfully tested environmental remedy some believe. 3. Cap and trade would effectively be a sales tax that would likely slow growth and be more regressive than a carbon tax. 4. Cap and trade would present more politics as usual: Very long and complicated bills are enacted on very short notice, increasing the risk that, at best, there will be secret rewards for friends and punishments for foes, and at worst, bribery or extortion as votes are exchanged for quid pro quo campaign contributions. This process enriches the political classes of office holders, political fundraisers, campaign advisers, and public relations people. It also enriches the litigation classes of lawyers, expert witnesses, and consultants. This process harms the rest of society.

Keywords: cap and trade, carbon tax, climate change, energy, environment, global warming, international commerce

JEL Classification: K32, K33, K34, O40