How It Works.
Deceptive Benefit Claims:
First, environmental effectiveness: a tax does not guarantee achievement of an emissions target, but it does provide greater certainty regarding costs. This is a fundamental trade off. Taxes provide automatic temporal flexibility, which needs to be built into a cap-and-trade system through provision for banking, borrowing, and possibly a cost-containment mechanism. On the other hand, political economy forces strongly point to less severe targets if carbon taxes are used, rather than cap-and-trade — which is why environmental
NGOs are opposed to the tax approach. ...
But the key difference is that political pressures on a carbon tax system will most likely lead to exemptions of sectors and firms, which reduces environmental effectiveness and drives up costs — some low-cost emission reduction opportunities are left off the table. But political pressures on a cap-and-trade system lead to different allocations of allowances, which affect distribution but not environmental effectiveness and not cost-effectiveness. —Stavins, "Cap-and-Trade or Carbon Tax," Environmental Law Institute, Jan/Feb 2008.
The first criterion any proposed climate policy must meet is environmental effectiveness: Can the proposed instrument achieve its intended targets?
A cap-and-trade system is the best approach in the short to medium term. Besides providing certainty about emissions levels,...
a cap-and-trade system can achieve emission targets with high certainty because emission guarantees are built into the policy.
Overall, a cap-and-trade system provides certainty regarding emissions from the regulated sources as a group, because aggregate emissions from all regulated entities cannot exceed the total number of allowances.
—Stavins, "A U.S. Cap-and-Trade System to Address Global Climate Change," The Brookings Institution, 2007.
National Policy >