Nah, it depends on the mechanism for apportioning pollution credits. If these are auctioned, then everyone has to pay for the right to pollute, just like in a carbon tax.

If they are handed out to some companies for free, then yes, some companies will be net sellers and make money off the deal.

Nah, it depends on the mechanism for apportioning pollution credits. If these are auctioned, then everyone has to pay for the right to pollute, just like in a carbon tax.

If they are handed out to some companies for free, then yes, some companies will be net sellers and make money off the deal.

Let me translate that into plain English: the difference between cap-and-trade and tax is that under cap-and-trade the past polluters get the (limited) right to pollute, which they can then sell, while under a tax, they have to pay.

They are (assuming perfect planning) Pareto equivalent, but differ by a very big transfer of money. A very quiet transfer.

Let me translate that into plain English: the difference between cap-and-trade and tax is that under cap-and-trade the past polluters get the (limited) right to pollute, which they can then sell, while under a tax, they have to pay.

They are (assuming perfect planning) Pareto equivalent, but differ by a very big transfer of money. A very quiet transfer.

All I can say is that in British Columbia, a right-of-centre government has been able to use the introduction of a carbon tax as an opportunity to get rid of some pretty stupid taxes on business activity. It has been subject to some populist criticism from the left, but the left is a bit immobilized by the political correctness of what the government is doing.

I suspect that in most OECD countries, there are some low-hanging fruit of taxes that are, by any estimation, more wealth damaging than a carbon tax.

I don’t claim to have any real idea how high the NPV of the cost of the marginal tonne of GHG emissions is, and I doubt that anyone else does either. Who knows? To figure it out, you’d have to resolve insoluble questions in dozens of disciplines. However, it is surely positive, and could be quite high. The left’s public-choice intuition is that it is higher than any politically-feasible carbon tax, and that makes sense to me.

In each of a cap-and-trade system and a Pigovian tax, the government sets one side of the equation and the market the other. In cap-and-trade, the government sets the volume of emissions and the market determines the cost of a unit of emissions. In a Pigovian tax, the government sets the cost and the market determines the volume. Which one is more efficient depends on whether the planning failure in determing the optimal volume is greater or less than the planning failure in determining the external cost of a unit of emission. In the global warming case, my guess is that the uncertainties are so great in both cases that political feasibility is the more important consideration. Cap-and-trade is more feasible because less transparent, though, and that’s a bit troubling, but not as troubling (I think) as bad as not doing anything.

All I can say is that in British Columbia, a right-of-centre government has been able to use the introduction of a carbon tax as an opportunity to get rid of some pretty stupid taxes on business activity. It has been subject to some populist criticism from the left, but the left is a bit immobilized by the political correctness of what the government is doing.

I suspect that in most OECD countries, there are some low-hanging fruit of taxes that are, by any estimation, more wealth damaging than a carbon tax.

I don’t claim to have any real idea how high the NPV of the cost of the marginal tonne of GHG emissions is, and I doubt that anyone else does either. Who knows? To figure it out, you’d have to resolve insoluble questions in dozens of disciplines. However, it is surely positive, and could be quite high. The left’s public-choice intuition is that it is higher than any politically-feasible carbon tax, and that makes sense to me.

In each of a cap-and-trade system and a Pigovian tax, the government sets one side of the equation and the market the other. In cap-and-trade, the government sets the volume of emissions and the market determines the cost of a unit of emissions. In a Pigovian tax, the government sets the cost and the market determines the volume. Which one is more efficient depends on whether the planning failure in determing the optimal volume is greater or less than the planning failure in determining the external cost of a unit of emission. In the global warming case, my guess is that the uncertainties are so great in both cases that political feasibility is the more important consideration. Cap-and-trade is more feasible because less transparent, though, and that’s a bit troubling, but not as troubling (I think) as bad as not doing anything.

Thanks for the timely and civil response. I don’t follow your analogy between governments setting carbon taxes and governments setting steel prices. The correct analogy would be to compare setting taxes to setting taxes or setting prices to setting prices. If carbon emissions have a negative externality, placing a tax on them makes economic sense. If steel has a negative externality, placing a tax on it makes sense. In order to support a carbon tax while opposing a steel tax, you only need to argue that carbon emissions have large negative externalities while steel does not.

Reserach shows evidence that carbon emissions definitely have a large negative externality, though the size of the externality varies between studies. No such research exists with regard to steel. The uncertainty created by the variance within the stuides does not negate the evidence they jointly present. Policy-makers should seek to reduce uncertainty by evaluating completed studies and/or implementing new ones, but the lack of precision as to the marginal cost of carbon emission does not support a policy of doing nothing.

Thanks for the timely and civil response. I don’t follow your analogy between governments setting carbon taxes and governments setting steel prices. The correct analogy would be to compare setting taxes to setting taxes or setting prices to setting prices. If carbon emissions have a negative externality, placing a tax on them makes economic sense. If steel has a negative externality, placing a tax on it makes sense. In order to support a carbon tax while opposing a steel tax, you only need to argue that carbon emissions have large negative externalities while steel does not.

Reserach shows evidence that carbon emissions definitely have a large negative externality, though the size of the externality varies between studies. No such research exists with regard to steel. The uncertainty created by the variance within the stuides does not negate the evidence they jointly present. Policy-makers should seek to reduce uncertainty by evaluating completed studies and/or implementing new ones, but the lack of precision as to the marginal cost of carbon emission does not support a policy of doing nothing.