As many now know, a large group of prominent economists, led by a large group of Nobel Prize winners, has published a petition in the Wall Street Journal. This petition declares the idea of putting a tax on carbon and then returning the receipts from it to the population on an even per capita basis to be the best and most efficient plan for dealing with global warming. This group continues to encourage more professional economists to sign this petition. I had previously received an invitation from Janet Yellen to do so, and today one came from Larry Summers. I kind of doubt that either specifically directed that I receive the invitation or, less likely, actually sent the message, although I could be wrong as I do know both of them. This petition shows how powerful this revenue neutral carbon tax fad has become.
As it is, I have not signed it, and my use of the word “fad” indicates my attitude. I really do not get why so many proiment and clearly highly intelligent economists have signed onto this proposal as being the one and only way to deal with this problem. Why are these people not mentioning cap and trade as an alternative (formerly known as “tradeable emissions permits”). There are multiple reasons to believe that cap and trade is at least as good if not better than this tax dividend proposal, both in terms of effectiveness and also in terms of the politics of getting something done.
The most famous cap and trade plan was that enacted in the US in 1990 for SO2 emissions. This plan eventually got superceded, but until that point it was universally viewed as a successful program, substantially reducing such emissions in a manner that did not trigger noticeable economic pain. There are now a substnatial number of carbon cap and trade systems in place, with the first one out the door being that of the EU, put in place to obey the Kyoto Protocol, which actually favored such systems. That system has faced criticism and had a major decline in its price in 2006, but has since stabilized, a fact not widely reported. Very recently the system has been put in place by the world’s largest emitter, China. Other nations or major sub-national units adopting cap and trade for carbon include South Korea, California, and Ontario, The closest we came ot having a national program to deal wiith carbone emissions in the US was early in Obama’s first term when he got a cap and trade plan passed by the House of Representatives, only to have it blocked by Republicans in the Senate.