SIMPLIFY, SIMPLIFY:

Senator Empirical - Bob Corker takes on climate change. (Ramesh Ponnuru, May 19, 2008, National Review)

Most senators do not know much about global-warming policy. Senator McCain, for example, is an enthusiastic proponent of cap and trade. He sees it as an alternative to a carbon tax that would raise the price of gasoline, which he wants to lower. Actually, cap and trade would raise the price of gasoline too, and quite significantly, as oil companies passed along the legislation's costs to consumers.

Most economists, whether they favor cap and trade or not, see it as very similar to a carbon tax in its effects. The major difference is political. Senators know that voters would rebel against a direct increase in energy taxes. Cap and trade is an elaborately disguised version of the same thing. In addition, cap and trade would create more pressure groups with a financial interest in the government's policy.

Even former senator Phil Gramm, one of McCain's top economic advisers and a very smart man, does not see how similar cap and trade is to a carbon tax. While campaigning with McCain in New Hampshire, he told me that he does not support cap and trade, but prefers it to a carbon tax because it wouldn't raise money for the federal government. Actually, cap and trade would raise money for Washington, because it would be auctioning off many of the permits to emit greenhouse gases.

If you accept the estimates that Lieberman and Warner use for the cost of these permits, around $13 per ton of emissions, their bill would have the government raising $1 trillion through 2031. If you use a more realistic estimate -- in the EU's existing cap and trade system, a ton costs $40 -- that figure rises quite a bit. The bill stipulates how that money will be spent, and it removes that spending from the normal budget process. Whatever else it is, Lieberman-Warner is a bill to raise taxes and spending.

A direct carbon tax seems clearer and more efficient. Pair it with reductions on taxes on income and savings and you'd be penalizing what you don't want to the benefit of what you do.

Posted by Orrin Judd at May 6, 2008 2:30 PM