Both emissions taxes and cap-and-trade can:
- achieve optimal emissions at the least cost to society
- provide incentives for firms to innovate and further lower abatement costs
- both carbon taxes and cap-and-trade can raise revenue for the
government. Carbon taxes can raise more. Emissions permits must be sold
by the government for cap-and-trade to able to raise revenue.
- emissions trading markets might result in more price variability for
consumers. This can be resolved with a price control in the emissions
market (i.e., a safety valve).
- emissions trading markets can become overly concentrated. if some
firms accumulate a large number of permits they could set the price
above the competitive level. government must be sure to promote
competition just like it does in other markets.
- I’m sure there are other issues and I’m happy to be reminded of them.
#1 and #2 are the big things. The rest are relatively minor issues. I’m happy with either policy since I think that #1 and #2 are the most
important (i.e., that is where the most efficiency gains versus the
status quo and versus command and control can be found).
I think cap-and-trade has a better chance of implementation so I’m not going to get in the way.