Cap and trade is more efficient than a tax, that's the whole point of it -- allowing the market to find the least costly way of reducing total emissions below the cap, as opposed to forcing everyone to reduce emissions by the same percentage regardless of the cost.
As for handing out billions of dollars of emissions credits to current polluters that they can then sell, this is completely false. The way the initial allocation works under most proposals is to give current polluters credits to cover part of their current emissions upfront. Then if they reduce their emissions beyond their allocated emissions they can sell the excess credits. This is what makes cap and trade so efficient, there are huge profits to be made by companies that can create technologies to reduce emissions the most efficiently.
Then over time the total cap decreases, and the amount of credits allocated to existing polluters also decreases, so that all companies will have to buy whatever credits they need at a yearly auction or whatever.
>> Cap and trade is more efficient than a tax, that's the whole point of it -- allowing the market to find the least costly way of reducing total emissions below the cap, as opposed to forcing everyone to reduce emissions by the same percentage regardless of the cost.
A tax doesn't force everyone to reduce emissions by the same amount. If cutting emissions is less profitable than paying the tax, you pay the tax, otherwise you cut emissions.
>> As for handing out billions of dollars of emissions credits to current polluters that they can then sell, this is completely false. The way the initial allocation works under most proposals is to give current polluters credits to cover part of their current emissions upfront. Then if they reduce their emissions beyond their allocated emissions they can sell the excess credits. This is what makes cap and trade so efficient, there are huge profits to be made by companies that can create technologies to reduce emissions the most efficiently.
How about if they just shut down their production and sell the credits? Giving the credits to incumbents is a large barrier to entry for competitors and a give away. If you are going to have credits rather than a tax, the credits should be auctioned.
> Giving the credits to incumbents is a large barrier to entry for competitors and a give away. If you are going to have credits rather than a tax, the credits should be auctioned.
Sure, but that's not an inherent feature of cap and trade. The only reason why most current proposals include this is because it's the only way the legislation has a realistic chance of passing. And there is at least a decent justification for it, in that it reduces any initial financial impacts, and then still transitions into a full auction over a few years.
How about if they just shut down their production and sell the credits? Giving the credits to incumbents is a large barrier to entry for competitors and a give away. If you are going to have credits rather than a tax, the credits should be auctioned.
I guess it wasn't entirely clear, but I was referring to repeated auctions for limited time permits (e.g. annual). That puts new entrants on an equal footing after a relatively short period of time.
A carbon tax is hardly going to cause an equal cut in emissions across all sectors. Sectors with cheap alternatives will switch and those without will not. Consider there are few alternatives for aircraft, but a coal power plant has lot's of clean alternatives at competitive prices.
A heavy carbon tax might add 1 cents a gallon to gas prices, which would basically be ignored by most people / companies, but the same tax would make new coal power plants unprofitable. In the end it let's the markets decide the most efficient approach even if that's to do nothing.
As for handing out billions of dollars of emissions credits to current polluters that they can then sell, this is completely false. The way the initial allocation works under most proposals is to give current polluters credits to cover part of their current emissions upfront. Then if they reduce their emissions beyond their allocated emissions they can sell the excess credits. This is what makes cap and trade so efficient, there are huge profits to be made by companies that can create technologies to reduce emissions the most efficiently.
Then over time the total cap decreases, and the amount of credits allocated to existing polluters also decreases, so that all companies will have to buy whatever credits they need at a yearly auction or whatever.