[p2p-research] Fwd: ZNet Daily Commentary: Why Cap And Trade And Not A Carbon Tax? By Robin Hahnel

[Michel Bauwens]

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Subject: ZNet Daily Commentary: Why Cap And Trade And Not A Carbon Tax? By
Robin Hahnel
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Why Cap And Trade And Not A Carbon Tax?

February 25, 2010 By *Robin Hahnel*

Robin Hahnel's ZSpace Page<http://www.zcommunications.org/zspace/robinhahnel>/
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*YES, a carbon tax is usually preferable to cap and trade.*

A carbon tax is preferable to cap and trade unless there are compelling
practical reasons a tax won't work as well.  A tax is simpler and easier to
administer. With a tax there is no carbon market to go haywire. With a tax
the government collects the revenue automatically, whereas with a cap and
trade policy you always have to fight to make sure that 100% of the permits
are sold at auction so the government gets the revenue instead of giving
away the new wealth the cap creates to the bad guys. For all these reasons
almost every progressive economist, including me,  generally prefers a
carbon tax over an equivalent cap and trade program, i.e. one that achieves
the same overall emission reduction. *However, there are some very
compelling reasons to favor cap and trade over a carbon tax right now both
internationally and within the United States.*

*International Treaty Policy*

Here are three compelling reasons why progressive environmentalists should
favor an international treaty that improves upon the Kyoto cap and trade
framework, and not succumb to the temptation to call for an international
carbon tax instead.

(1) The international community has invested twelve years negotiating a cap
and trade format, and given the urgency of the problem as compared to the
speed of international diplomacy we don't want to start all over again.
While some propose now switching from cap and trade to an international
carbon tax in good faith, the true opponents of doing anything significant
to avert climate change are now dangling a carbon tax as a cynical ploy to
delay negotiations further. We should not witlessly aid and abet our
enemies.

(2) The scientific community has positioned us to win global caps that are a
decent deal. Discussion is now centered on caps that would keep the average
global temperature from rising by more than 2 degrees Celsius, or stabilize
greenhouse gas concentrations in the atmosphere at 350 ppm.  Caps that
accomplish this would be a tremendous step forward to prevent climate change
before it is too late. On the other hand, there is no way in hell we have
any chance of winning political support for an international carbon tax high
enough to reduce emissions by nearly this much. In other words, strictly
from an emission reduction perspective we are poised to get a much better
deal than we could ever hope to get with an international carbon tax.

There is a good reason this has proven to be the case. When tax levels are
debated it is economists who are the experts. How high should a tax be? Ask
an economist. On the other hand when we ask how low does a cap need to be to
keep us safe people sensibly ask climate scientists. We want the political
debate to play out the second way - with climate scientists telling us what
is safe -- not the first way - with economists telling us how high to set a
carbon tax based on their estimates of how costly the tax will be to the
economy. Economists are the main enemy in this regard and we should not
witlessly re-empower them now that climate scientists have seized the
microphone.

(3) But neither of these is the most important reason we should prefer a cap
and trade international treaty to an international carbon tax. The most
compelling reason is there is no practical way to make an international
carbon tax nearly as fair as we can make a cap and trade policy. One issue
is how effective the treaty will be at averting climate change. That
concerns with how much and how fast global emissions are reduced. The second
important issue is how the costs of achieving those reductions will be
distributed among countries, some of whom bear much greater "responsibility"
for current GHG concentrations in the atmosphere than others, and some of
which have much greater "capacity" to bear costs of solving any
international problems than others. A uniform global carbon tax places a
more or less equal burden on all countries principally in the form of higher
energy costs in the short and medium run. *If* the international treaty
organization collected this tax from every country, then *in theory* the
treaty organization could redistribute the tax revenue in a way to be fair
to poorer countries - e.g. compensate China and the Republic of the Congo
for imposing as high a carbon tax as the US. But there is no chance in hell
that countries are going to let the UN collect a carbon tax. The only
conceivable international carbon tax treaty would direct all governments to
impose a uniform carbon tax, and then every government would collect the tax
from their own citizens. Having done so, does anyone imagine the US Senate
would agree to send tens, if not hundreds of billions of dollars per year
collected from US citizens to the government of China?

So, the overwhelming problem with an international carbon tax is there is no
way the tax revenues would be distributed back to countries in a way that
fairly compensates poorer countries. On the other hand, with cap and trade
redistribution is done by giving wealthier countries tighter (lower) caps
than poorer countries, and then allowing richer countries to "buy" cap space
from the poorer countries through carbon trading. Moreover, Kyoto is already
set up this way.

It is increasingly apparent that lumping countries into two groups - Annex-1
MDCs with more or less the same mandatory cap, and non-Annex-1 LDCs with no
caps - is not the best way to set caps for both efficiency and equity
reasons. But it is easy to fix this problem in Kyoto. Assigning caps for all
countries according to the Greenhouse Development Rights Framework formula
would follow in the Kyoto tradition and perfect the system of distributing
the costs of averting climate change according to "differential
responsibilities and capabilities" by assigning very different caps to
different countries on a continuum based on their *per capita* cumulative
emissions since 1990 and their *per capita* GDP. This solves two of the
major problems with the Kyoto Protocol. (1) By capping emissions in all
countries it prevents any trading of bogus allowances or offsets in
international carbon markets from puncturing holes in the cap on global
emissions. In other words, it makes the treaty more effective at preventing
climate change. (2) By treating countries differently on a continuous
instead of a dichotomous basis the treaty would become much more fair. Not
all MDCs are equally responsible and capable. More importantly, not all LDCs
are equally responsible and capable. China should not be treated in the same
way as the United States - contrary to what President Obama and US Senators
may think. However, the Republic of the Congo should not be treated in the
same way as China either. The Green House Development Rights framework would
give the US tighter (lower) caps than China, but would give China tighter
(lower) caps than the Republic of the Congo.

Given the alignment of political power one should never underestimate the
ability of conservative forces to obstruct progress. Nonetheless, there is
as good a chance of winning a really sweet deal for poorer countries through
an improved cap and trade post-Kyoto treaty as there is of moving forward on
any issue right now. And there is no chance of moving the climate justice
agenda forward if we go back to the idea of an international carbon tax.
With caps higher than current emissions for poorer countries and caps way
below current emissions for richer countries, carbon trading could generate
the biggest transfer of resources from North to South the world has ever
seen. You would think people fighting for "climate justice" would champion
this instead of adamantly opposing it.

*Domestic Policy*

Any country that does not suffer from "tax-phobia" should go for a domestic
carbon tax over a domestic cap and trade program. As I said above, it's
simpler, easier to administer, there's no need to win the political fight to
auction all the permits instead of giving them away for free, and no carbon
market to go haywire on you.

Unfortunately in the US we do suffer from *acute tax phobia*, even though it
is irrational for normal people to fear taxes and only rational for the
wealthy to do so. So there is no way we can get a domestic carbon tax passed
that is high enough to do squat. Again, the bad guys know this and now have
come out for a domestic carbon tax instead of a cap and trade law as a
cynical tactic to delay and weaken meaningful domestic legislation.

Waxman/Markey/Boxer/Kerry is a cap and trade disaster - where industry
interests and drafters who are idiots have made every conceivable mistake
possible in designing a good cap and trade policy. Cantwell/Collins is a
MUCH BETTER BILL written largely by one of "us" - James Boyce, who has an
excellent 5 part series on *The Real News Network* website everyone should
view. Cantwell/Collins is the bill all progressives in the US should get
behind. We need to fight to prevent the bad lobbyists from gutting the
Cantwell/Collins bill.

We also need to try to persuade misinformed people on the US left from
aiding and abetting the bad guys fighting against the Cantwell/Collins bill.
Right now many US leftists think "cap and dividend" is different from "cap
and trade" so they have not denounced Cantwell/Collins the way they
routinely denounce cap and trade policies.  But of course this is not really
true. Cap and dividend *is* cap and trade. It is just a particular kind of
cap and trade where the initial distribution of tradable permits is carried
out through an auction rather than a give-away, and then the proceeds from
the auction  -- 75% in the case of Cantwell/Collins -- are rebated to
citizens on a per capita basis to compensate them for higher energy costs.
Once those who oppose all carbon trading and carbon markets discover the
truth about "cap and dividend" - which progressives should refer to as "cap
and rebate" - they may come out against Cantwell/Collins if we cannot talk
some sense into them first.
 ------------------------------

*From:* Z Net - The Spirit Of Resistance Lives<http://www.zcommunications.org/>
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