A cap and trade system grants free pollution only if the initial allocation of credits is granted for free. If the grants are auctioned, the price signals are comparable to those from a carbon tax. A credit system provides greater certainty on the quantity of emissions; a tax system on the price. My personal preference is a tax approach due to potentially easier administration. Loopholes and gaming are possible under both systems -- most commonly through special tax exemptions (the proposed Clinton Btu tax was sunk by these), free allocation of credits, or through poorly structured or monitored credits for sequestration.
Bloomberg's approach of taxing businesses for GHG emissions illustrates the problems of inaction on the national level. A much cleaner solution, both in terms of market prices and ease of administration, is to have these types of taxes levied as close to the point of extraction of fuels as possible. This is the easiest point to measure the GHG content of the fuels, and doesn't require a government agency to try to measure and enforce charges at thousands of different types of businesses.
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>>> "Reindl, John" <Reindl@no.address> 11/5/2007 9:05 AM >>>
New York City Mayor Michael Bloomberg proposed a national "pollution pricing" plan Friday that would tax companies directly for the greenhouse gases they release. Bloomberg suggested a fee of $15 for every ton of greenhouse gas companies emit, with the money used to reduce payroll taxes and finance tax credits for companies that reduce their greenhouse gas pollution. He also said another carbon-reduction approach known as cap-and-trade, which many Democratic candidates have endorsed, is a flawed solution and could create bidding wars.
I also believe that a cap-and-trade approach is wrong, as it essentially grants polluters a right to pollute up to the limits of their permit. I believe that no one should have any right to pollute and should be required to pay for any pollution that they discharge.
A news story on Mayor Bloomberg's position can be found on the internet at http://edition.cnn.com/2007/TECH/science/11/03/bloomberg.emissions.ap/index.html