Cap-and-Pillage

Robert Samuelson states a number of unpleasant truths in his "Just Call it Cap and Tax" column yesterday. Cap-and-Trade was a good idea on paper, or as physicists like to say, "on a frictionless surface in a vacuum."

Carbon emission credits would by very definition have economic value, which is to say they would be money, only unlike cash money, which is at subject to at least a few customary limits on blatant scheming, carbon emission credits (or Tears of Gore, as I like to call them), would be set up explicitly for the purposes of manipulation of behavior. To the extent that energy underlies almost every part of the economy, and that the production of carbon goes hand-in-hand with the production of energy, cap-and-trade would create an opportunity for rent-seeking and outright looting on a scale not seen since the deeply flawed privatization of state businesses in Russia 15 years ago.

Against this, a plain old tax on CO2 emissions seems vastly more sensible, especially if the proceeds are used to offset capital gains or income taxes. Carbon-advantaged energy sources would have price incentives built into them, and offsetting other taxes would alleviate some of the economic damage associated with higher energy costs. This is especially important given that neither China nor India, who will within a decade's time likely dwarf US emissions, is going to do anything that actually stunts their economic growth. My most optimistic vision is that algae biodiesel or solar or something as yet unimagined becomes commercially practical on a large enough scale to make the issue moot.