Climate clash in White House

Piece in the Times details the likely showdown between the cap-and-traders on Obama's team - -Carol Browner, and of course, Obama himself, at least for now -- and carbon tax advocates Larry Summers and Peter Orszag. It talks about Obama being against a carbon tax because he doesn't want any hit of higher energy prices at a time when average folks are already reeling in the recession. Fair enough. But the missing piece in these discussions is that cap-and-trade only works by creating a de facto tax anyway via higher energy prices as the cost of emissions permits gets built into prices. It just doesn't look like an explicit tax, which supposedly helps the pols. I'm dubious. Especially when cap and trade also looks like it means a big bureaucracy to administer and allocate it all, a system that is sure to be gamed. The best idea I've heard is "carbon-tax and dividend" (see one version here), which would would simply be a re-jiggering of the tax system. You'd add stiff new carbon taxes, but then rebate, say, 90% of the proceeds via, say, payroll tax reductions. Maybe you'd keep 10% to invest at the federal level to jumpstart new alternative energies, in hopes of hitting on a DARPA-like win (the Pentagon program 25 years ago that helped bring us the Internet). Carbon tax and dividend means there would be no impact on the average consumer -- indeed, with a little creativity you could design it so that lower income folks got back more in lower taxes than they paid in higher energy prices. And if you have strict reporting requirements on emissions you can track progress against what the cap and traders say needs to be achieved in overall emission cuts, and dial the tax (and rebates) up if need be. Conservatives could support it, too. Something like this needs to get on the agenda.

UPDATE 1/4: Charles Krauthammer makes passionate conservative case for carbon tax and dividend in the Weekly Standard.


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