Cap and Trade

Felix Salmon has a Critique of Larry Summer’s challenge of Cap-and-Trade of Carbon emissions. His point by point analysis should be carefully read, because it probably presents as good an argument for Cap and Trade as can be extrapolated. I am leaning more towards a Carbon tax over Cap and Trade of Carbon Emissions, and I might as well present my rationale here.

The first objection to Cap and Trade in Carbon Emissions lies in the bureaucratic snarl which it will create. There is the difficulty of establishment of Carbon districts; a Process vastly inoculated with gerrymandering technique to avoid high Carbon emissions areas. The establishment of Cap size will spend more Time in the Courts than it will be in force on the ground. Violations of the Cap will occasion even greater use of the Court system, and harsh Penalties for Violation will never be maintained; they must be in excess of the Profitability of Carbon emission Violations in the first place to accomplish anything. There is inherent restriction to new Entrants into Production, as current Holders of Carbon Credits will be loath to any dilution of the full value of those Rights; this providing full venue for monopolistic practice. Acquisition of Carbon Credits will devolve into one more Start-Up Cost, and one which is as expensive as Construction Costs (think of buying out currently profitable Concerns). The sum total of these influences will make Cap and Trade far too economically expensive.

I favor a general increase of Business Taxation, based upon a Percentage increase to all Business, if set Caps are not met. My idea here is a Scale of Caps combined with a Scale of Tax rates. I would consider a set of 5 Cap levels, with a 2% Tax differential between each Cap level. This can be considered as a Surtax upon current Tax rates, with the lowest Cap Tax rate set 5% higher than the current Federal Tax rates. There is no barrier to entrance for new Business Concerns, distinct Incentive to reduce Carbon emissions by all Participants as a continuous Propellent, no ability to introduce lawsuits as it is Federal Tax law, and real readiness on the part of Business to abandon heavy Carbon emission Production activities. lgl