Friday, June 22, 2007

Tradable emissions permits are a popular, but inferior, way to tackle global warming

"But the biggest problem, at least politically, is that carbon taxes are transparent and simple, whereas cap-and-trade systems are complicated and conveniently opaque.
Under a cap-and-trade scheme, governments can pay off politically powerful polluters (such as the coal industry) by giving them permits.

Even more important, rich countries can pay poorer ones to cut their emissions without any cash changing hands between governments. Under a carbon tax such transfers must go through the government's budget. And that can be politically tricky. However sensible it sounds to an economist, American voters may be loth to see their tax dollars funding fat cheques for China.

Add in these political arguments and the choice between a carbon tax and cap-and-trade becomes less obvious. Politicians are heading down the second-best path to combat climate change, but it may be the only one that leads anywhere."

From The Economist
HT: Greg Mankiw