18 April 2009

Cap-and-trade, carbon tax, or Climate Stability Bonds?

Barry Brook and Tim Kelly present a useful submission about cap and trade. Their arguments against it have force:
1. A cap and trade mechanism is by its nature, an all consuming policy instrument that extinguishes the effectiveness of voluntary actions, harming rather than enhancing the evolution of a low carbon economy.

2. With a cap and trade approach, the target is everything as both the emissions cap and emissions floor are locked in. No one can do better than the cap, and so the cap must be a science based [all-]consuming sustainable target pathway that won’t lock in failure. ....

3. ... The cap and gateway will either be too aggressive and will cause a political backlash, or [too] soft leading to coasting when we should be transforming the economy. [My ellipses] CPRS vs carbon tax: Senate Inquiry
They have further points, all pointing to a carbon tax in preference to cap-and-trade. My own thinking is that there's nothing a carbon tax can do that Climate Stability Bonds cannot do better. If investors in Climate Stability Bonds think cutting back greenhouse gas emissions is the best way of stopping climate change then they will have a powerful incentive to demonstrate that and lobby for it. But if they come up with better ways of cutting back emissions - or halting climate change - then they will explore and implement these. In such a way, the risk that a carbon tax will fail to halt climate change is transferred away from taxpayers, consumers and indeed the world's entire human, animal and plant life, to investors in the bonds. And the investors have far more compelling incentives to get things right than whoever levies and pays (or more likely, tries to avoid) any carbon tax.

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