Exxon Mobil coming out in favour of a carbon tax to combat climate change, after so many years funding denial that climate change even exists, sounds like King Herod belatedly announcing his support for child protection policies. The shift happened after pressure from the Rockefeller family and a change of CEO, but sceptics have noted that Exxon had this change of heart just as the US is looking to enact a domestic cap-and-trade scheme. It has been suggested that Exxon is simply attempting to derail cap-and-trade, not to bring about a carbon tax.
Exxon has no credibility on this issue, but there are genuine reasons to think a carbon tax may be a better policy than emissions trading. A tax gives certainty of price for carbon, allowing companies to make investments on that basis, rather than the wild fluctuations in the price of carbon we’ve seen in the EU Emissions Trading Scheme. The trade off is that it doesn’t give the certainty of the level of annual emissions that an emissions trading scheme brings. A carbon tax should be more economically efficient than emissions trading because fixing the price helps decision makers to plan for investments, although it means that the environmental outcome is less certain. The real objective is to ensure a long-term transition to a low-carbon economy, not to make sure that the target is exactly met every year. All that is necessary is to adjust the progress of the tax if it is reducing emissions too slowly over a period of years.
However, emissions trading has political advantages. One reason is that the word ‘tax’ is politically toxic. A second reason is that the higher costs involved in emissions trading are not so obvious as with a tax, so do not arouse so much opposition. A third reason is that it is fairly easy conceptually to grasp how emissions trading with a cap reduces emissions, while it is harder to understand how a carbon tax reduces emissions.
Emissions trading with auctioned permits, as President Obama proposes, raises revenue in the same way a carbon tax does and allows taxes elsewhere to be cut. Both represent green fiscal reform. The choice is between the policy advantages of one and the political advantages of the other.
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Re: ‘Emission trading sector lashes out at carbon tax’
10 March 2009 in Environmental effectiveness, GFC Commentary | by Simon Dresner | 1 comment
Exxon Mobil coming out in favour of a carbon tax to combat climate change, after so many years funding denial that climate change even exists, sounds like King Herod belatedly announcing his support for child protection policies. The shift happened after pressure from the Rockefeller family and a change of CEO, but sceptics have noted that Exxon had this change of heart just as the US is looking to enact a domestic cap-and-trade scheme. It has been suggested that Exxon is simply attempting to derail cap-and-trade, not to bring about a carbon tax.
Exxon has no credibility on this issue, but there are genuine reasons to think a carbon tax may be a better policy than emissions trading. A tax gives certainty of price for carbon, allowing companies to make investments on that basis, rather than the wild fluctuations in the price of carbon we’ve seen in the EU Emissions Trading Scheme. The trade off is that it doesn’t give the certainty of the level of annual emissions that an emissions trading scheme brings. A carbon tax should be more economically efficient than emissions trading because fixing the price helps decision makers to plan for investments, although it means that the environmental outcome is less certain. The real objective is to ensure a long-term transition to a low-carbon economy, not to make sure that the target is exactly met every year. All that is necessary is to adjust the progress of the tax if it is reducing emissions too slowly over a period of years.
However, emissions trading has political advantages. One reason is that the word ‘tax’ is politically toxic. A second reason is that the higher costs involved in emissions trading are not so obvious as with a tax, so do not arouse so much opposition. A third reason is that it is fairly easy conceptually to grasp how emissions trading with a cap reduces emissions, while it is harder to understand how a carbon tax reduces emissions.
Emissions trading with auctioned permits, as President Obama proposes, raises revenue in the same way a carbon tax does and allows taxes elsewhere to be cut. Both represent green fiscal reform. The choice is between the policy advantages of one and the political advantages of the other.