Monday, May 18, 2009

Paul Krugman and Cap and Trade

There has been a lively debate among environmentalists over the better mechanism to reduce greenhouse gas emissions: cap and trade or a carbon tax. For my part, I like the simplicity of a carbon tax, but agree with Paul Krugman that either technique can have the desired effect:
In principle, emission taxes and tradable emission permits are equally effective at limiting pollution.
Krugman goes on to offer some cogent reasons to prefer cap and trade:
In practice, cap and trade has some major advantages, especially for achieving effective international cooperation.
Not to put too fine a point on it, think about how hard it would be to verify whether China was really implementing a promise to tax carbon emissions, as opposed to letting factory owners with the right connections off the hook. By contrast, it would be fairly easy to determine whether China was holding its total emissions below agreed-upon levels.
For that matter, it's not hard to imagine U.S. industries slipping loopholes into unrelated tax legislation. But an open market can shed more light on actual carbon emissions than the fine print of the tax code.
The most important reasons for supporting Waxman-Markey are (1) it would have a significant impact, and (2) it's on the table right now:
After all the years of denial, after all the years of inaction, we finally have a chance to do something major about climate change. Waxman-Markey is imperfect, it’s disappointing in some respects, but it’s action we can take now. And the planet won’t wait.


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