The False Dichotomy of Cap and Trade OR Carbon Tax

Net Carbon Emissions Projections for 2005-2050 Resulting from Various Carbon Legislations

As differences between the Dems and GOP have come to a head over health care reform, the question has been asked across Capitol Hill of whether the Obama Administration will go after a Carbon Legislation before the next elections in November 2010.  While the Kerry, Lieberman, Graham bill proposes a carbon cap and trade, there has been dissent from both Al Gore and Exxon CEO Rex Tillerson – an unlikely duo to be sure, that have offered up a simpler carbon tax, that would operate in the same ways that other taxes operates so as to be easier to regulate across supply chains and revenue streams.  Cap and Dividend has been positioned in the past two years – beginning during the Presidential Campaign – as an alternative to either Cap and Trade or Carbon Tax as a solution to reaching both 20% reduction in carbon emissions from 2005 to 2020, and 80% reduction in carbon emissions from 2005 to 205.  Research cited by the Union of Concerned Scientists says that Cap and Dividend reaches 83% redcution by 2050 but only 6% by 2020 – it only gets half of the equation right, while the House and Senate bills both achieve the 2020 and 2050 goals.  Supporters have called it the ultimate “third way” in the carbon legislation dilemma facing decision-makers in Washington DC today.

The Cap and Dividend bill originally came out of the fiscally and socially moderate GOP offices of Maine’s two Sens. Maria Cantwell, and Susan Collins.   (ed.– As full disclosure, I was roommates with staff of both Senators while the initial proposal was being developed, and discussed it at length.)  The Economist has come out in favor, as has Huff Post, and Andy Revkin has dedicated a lot of time to it at NY Times and even observed that none other than James Hansen* has come out strongly in favor of Cap and Dividend as well, but Joe Romm has dismissed Cap and Dividend as not politically viable, and other critics have followed suit, because it squarely charges the utilities and not end-users, and provides the dividends to only end-users, and none of the dividends to the utilities. As Joe Romm opines, “That’s because, at its most basic level, a price for carbon most directly encourages fuel-switching (especially from coal), but does not particularly encourage efficiency. That’s why most traditional economic models require a very high (read “unduly brutal” and “politically unacceptable”) price for carbon to get deep reductions.” (his bolds)

Romm concludes with a suggestion of looking at how California used smarter legislations and tighter regulations and research and development to reduce emissions.

“Honestly, we are way past the time when we can risk the climate on such politically naïve thinking. California has shown that amazing amounts of efficiency can be achieved with aggressive government programs, utility decoupling, and moderately higher electricity prices (but not higher electricity bills). That strategy makes much more economic sense — and is far more consumer- and business-friendly, hence much more politically sustainable — than trying to do everything with price, a strategy that is doomed to fail.”

The “Cap” part of the equation means a cap on carbon emissions.  The trade part seems to be the problem for some.  The elaborate system coming out of the House with the Waxman-Markey bill is 36 times longer than the simple 40-page Cantwell-Collins CLEAR Act.  Waxman Markey offers an extremely elaborate bureacratic layer of government, and regulation of every end use that generates carbon emissions. That bill also is akin to the old phrase coined by Arizona Senator John McCain, “No Pork Left Behind”.  The CLEAR Act is simply designed, with virtually very little new bureacratic overlay, and the added benefit of providing monthly allottment of funds to the public for carbon costs associated with their energy bill.  While that is a boon in the eyes of some Blue Dog Democrats and Moderate Republicans (it is, after all, akin to Palin’s “Socialist” Subsidy of Oil profits garnered for Alaska Residents), it is a deathknell in the politically vital Midwest and Plains States and South, where there are many agricultural states and coal-producing, and generating economies.  The Cantwell-Collins bill is not, however, as effective in capping carbon based on research by the World Research Institute, while the Political Economy Research Institute at the University of Massachusetts has done research that shows a state-by-state cost benefit analysis and concluded a respectively strong showing of the overall net benefits of Cap and Dividend across the US.  Rep. Steny Hoyer is announcing a similar bill in the House to the CLEAR Act in the Senate.  If Lieberman, Graham and Kerry et al in the Senate include the Dividend element into existing legislation, there could be signals of bipartisan dialogue in the days, weeks and months to come.

*- It should be remembered for Austinites that Austin Energy’s former General Manager, Roger Duncan would start off many of his presentations of AE and Austin’s Climate Protection Plan by citing the esteemable James Hansen’s dire predictions of impending global peril resulting from Climate Change if the problem is not acted upon urgently.




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3 responses to “The False Dichotomy of Cap and Trade OR Carbon Tax

  1. Cap and dividend, cap and trade and carbon tax are all inadequate.

    They can never become global solutions and nothing less will do. The world will never be able to agree how to share emission cuts or the revenue from an international carbon tax or international auction of allowances under a cap. Carbon dioxide spreads globally and needs a global arrangement to sort it. Acid rain was much easier because the problem was local to the emission, so each country could adopt its own solution.

    The world has spent twelve years since Kyoto was adopted failing to reduce CO2 emissions. It was agreed at Copenhagen that global warming should be limited to 2C but we are further than ever from agreeing how to share the massive implied emission reductions between nations. Our leaders need to consider an alternative to caps or taxes with an open mind instead of going round the same unproductive loop over and over again.

    I have a simple, effective and potentially popular proposal.

    In a recent Times Online live debate see
    85% voted that “Fossil fuel companies should be obliged [to pay for the sequestration] of an increasing fraction of the carbon content of the products they sell to avoid dangerous climate change”. For details on why this proposal would be easier for all countries to agree to than cap and trade or carbon tax, how it would drive energy saving, renewables and nuclear, how it would be implemented and how it would stop global warming see my article at

    and my website at

  2. sompholphardy

    I never knew of “cap and dividends” prior to reading your blog. I only knew of cap-and-trade and carbon taxes. After educating myself further on cap and dividends, I feel that the CLEAR Act is a great way to go. Sure, it is not as aggressive as California’s previous actions, but it might just do the trick. Now don’t get me wrong; I am a strong advocate of the environmental movement and want immediate action, but recently I have learned that too many variables are in this equation to just have something done in a snap. I state that the CLEAR act is a great way to go because of its gradual cap on carbon emissions. When change occurs slightly over a long period of time, people hardly notice it (i.e. global warming), so by steadily lowering the amount of GHG emissions companies can emit in a year, we will be more likely to reach our goal. Swift abrupt change would do as much good to us as dumping a goldfish from room temperature water to hot water (it dies).

    Let’s address the appealing portion of what cap and dividends offer: money. I mean, who can say no to money? Definitely not the end-users! Capping carbon emissions may cause energy prices to increase, but with dividends, end-users would have the financial support to handle it. Additionally, it sets a balance between those who live sustainably and those who don’t. I feel this would incite consumers to be more frugal, thus leading to extended resources. In this case, the right choice is the one not given (what you quote as “the third way”).

    • The cost of switching from fossil fuel or capturing carbon are real and substantial, so on average the dividend Cantwell proposes would not cover the cost to consumers of cutting emissions even if 100% were paid back. The problem is that money only goes into the kitty when people carry on burning fossil fuel. If people switch to expensive renewables or nuclear or adopt costly energy saving measures, which is the intention, the money has to be found elsewhere.

      The income redistribution part of the plan will nonetheless appeal to all socialists, but why dress it up as a dividend related to global warming? Why not just tax the rich and divide the take equally between everyone?

      If we want to stop global warming we need an international arrangement. When the Cantwell plan is extended internationally, will the whole population of the globe be entitled to equal handouts? How popular would that be in the US or Europe?

      My plan to stop global warming has none of this socialist claptrap. The people who should pay to stop carbon emissions are the ones who make them by burning fossil fuel. My plan puts a price on carbon in a similar way to Cantwell, by obliging fossil fuel producers to pay for the capture and sequestration of an increasing proportion of the carbon dioxide produced when their product is burned. This will drive energy saving, renewables etc. in exactly the same way as Cantwell’s proposal but there are no extra charges to provide handouts for everyone to try and grab.

      For details see my article at

      and my website at

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