mscbuck
"You Would Have Been BALEETED..."
Posts: 3,897
Let's also try and look at this from a positive perspective. Like Mort says, for hopefully an easier and more civil debate, assume that all the global warming stuff is correct. But also, let's rather try and argue about what method is more efficient, rather than the normative values behind them about whether you think government should force business to pollute, force private people to do X, whether the govt should provide the machines for cleaner tech on micro/factory scales, etc.
Personally, I've always been with Mort on this one and I think the tax works best, along with strong R&D bonuses for energy firms. I see no problem in giving immunity to an energy firm from taxes for a time period if for instance somehow they came up with some solution that drastically reduced emissions. Talk about profit motive right there. I've investigated certain other carbon tax/cap and trade hybrid theories that I actually like as well (McKibbin et al, 2002) that deal with emissions almost like long-term T-Bills with long term permits but also yearly short term permits to adjust for exogenous energy shocks, but I don't quite think people would be able to wrap their heads around it and therefore the tax would get the message across better. It seems like a lot of people don't get cap and trade either :/ .
The problem with pollution is that we really don't know how much the marginal cost is of reducing it is. The danger with going strictly cap and trade or carbon taxes is in the cases where we predict the costs either to low or to high. A permit policy where marginal benefit of abatement is steep and the marginal cost is flat, permits work better as they better allocate the amount of abatement. If cost of abatement turned out to be 10$ in the future, and the tax was 9$, everyone would just pay the tax and continue polluting. Situations different and costs are lower than taxes, then emissions will all drop to zero and we won't technically have an efficient level of pollution.
If the benefit of abatement is rather flat but the costs are very steep, then taxes work best. For example, let's say the government capped off emissions at some point because it found out the cost to be 10$. At that price, there is a certain amount of emissions that is abated. However, let's say the cost actually is higher. Then the price of the permit will rise substantially, and the cost of abatement would also rise as well, reducing the amount of it, and resulting in a large welfare loss whereas a tax would more closely approximate in this situation the level of abatement without a large reduction in welfare.
As you can see, a big problem in determining how to solve the climate change also involves figuring out some accurate cost, and for me the way I lean is still the tax (I'd go with the hybrid theory, but not sure if it's political feasible). To me I see at this stage in time fitting into the taxes scenario rather than the permit scenario, as at this point in time the marginal benefit of abating emissions is quite low and the cost is high (despite what you believe will happen in the future). The world operates on incentives, and the tax is probably the most efficient way at not only making those incentives painfully clear, but also a fair way to internalize a negative externality and not put the burden completely on government funded research with tax payer money. The only problem with the carbon tax is also political liability with large transfers in income from business to government and might end up costing a lot depending on where we calculate the benefit equals the cost of abatement, hence businesses wouldn't support it.
"His Will Was Set, And Only Death Would Break It"
"None knows what the new day shall bring him"