I agree with this, and I also agree that Frum could have been clearer in making the comparison between carbon taxes and cap and trade. I read his reference to a carbon tax the sentence before as indicating that he was comparing the two, but reasonable minds can differ, and you are right that the certainty is an argument for the cap over the the tax approach. The other benefits of carbon taxes outweigh that certainty IMHO, especially since they are adjustable, but that is a different issue altogether.

I take your point, thanks. If Frum had been clear about this, he could have made a different attack from the right -- for Congress to set the carbon levels is central economic planning, which we know from Hayek 101 is doomed!

It's probably better we get something passed rather than bicker endlessly about which of these two approaches is better.

And FWIW, I don't see why we couldn't do both...

The argument on exemptions and exceptions being a risk with an auction, but not a risk with a tax ... seems to me to require deliberately ignoring the raft of exemptions and exceptions and loopholes in the US tax code.

With an auction, we are going to be setting a target short of long term survival of civilization, with too many exceptions and exemptions and loopholes, while with a tax, we are going to be setting a target short of long term survival of civilization, with too many exceptions and exemptions and loopholes, and with a bias toward the politicians picking an economic model that sets the tax rate too low.

We will without any doubt have to go back and refight the fight several times if we are going to get to an outcome that is merely very bad, and given that, I prefer the system that has fewer steps between the legislation and the outcome we are trying to achieve.

However, it should be noted that since its permits being auctioned, its not necessary for the auction to clear ... a minimum permit price can be established, and if the auction does not clear above that price, only the permits people are willing to buy at the price floor are created.

The problem with a carbon tax is that the electorate stops listening after the word tax.

Again, I'm curious about the reasons for conservatives advocating a tax instead of cap and trade. Why is one more palatable than the other for them?

Cap-and-trade is a hidden, volatile, regressive tax imposed by requiring the purchase of permits, with the spending also hidden. So it's really "tax and spend" without the accountability of tax legislation or an appropriations process.

Conservatives, notably Senator Corker and Rep. Inglis are interested in a revenue-neutral carbon tax that would distribute all the revenue directly to households equally, either directly or via reductions in payroll taxes. That wouldn't increase the size of government and would reduce the distortionary tax on work.

There's no reason a tax can't be coupled with spending and conversely, there's no reason that a cap (with auction) can't be revenue-neutral, which is called "cap-and-dividend."

A reason everyone should be skeptical of cap-and-trade is that it would create another set of secondary markets (this time in carbon permits) that could be manipulated. That game is well underway in the EU.

Frum responds to Ezra:

http://www.newmajority.com/ShowScroll.aspx?ID=6dfeedb3-ef4e-4742-a759-d4009c828487

The main reason why I like cap and trade is because it's a spur for innovation:

http://www.amazon.com/gp/sitbv3/reader?ie=UTF8&p=S00C&asin=0393066908 (relevant discussion begins on second page of this book excerpt)

There are carrots (profits to be made for innovation) not just sticks.

Cap and trade has no cap on the cost.

They need to consider cap and dividend.

What's all the confusion about Carbon Tax vs Cap & Trade?

* Carbon tax/pricing is more directly focused on reducing emissions; more easily audited; much simpler to implement and administer; and the product is much, much simpler to measure over the long run than cap & trade.
* Carbon tax is determined at the mine or refinery-head by the product delivered. Taxes are collected by the IRS. Taxes are another line item in the cost of doing business for the producer.
* Carbon tax costs are passed to the consumer in direct proportion to the environmental impact of consumption.
* Carbon tax income can be redistributed to satisfy social needs.

It's simple:

Per unit of energy produced by burning a given fuel, you produce CO2: x for coal; y for oil [+ refinery emissions y1,y2,y3,y4] for fuel oil, diesel, kerosene, gasoline, etc]; z for natural gas. [ http://www.eia.doe.gov/oiaf/1605/coefficients.html ]

The tax is in direct proportion to CO2 emission used to produce energy, regardless who produces it or why -- to power factories, to propel a car, to deliver goods, to heat and light a business, home or casino.

The producer pays the tax & the IRS collects it. Very simple. The wholesaler (power companies, manufacturers, transportation, automobile buyers) are driven by the market to choose suppliers and products that cost less. Eventually they cost less because they are produced with less CO2 emissions. The consumer chooses the product and pays the price.

Tax revenues, computed directly in proportion to CO2 emissions of energy production, are much more easily measured and regulated than profits & losses, market conditions and market-based instruments. After all, the objective is to reduce CO2 emissions! Fast!

Because tax revenues are easily and directly measurable, they can be more fairly redistributed to ameliorate social inequities. If tax revenue were redistributed per capita, each and every citizen would receive the same rebate. Those who use less would receive a larger rebate in proportion to those who use more.

And how does Cap & Trade work again? Who determines the cap? Who distributes and prices the shares? How? Who monitors the trades? Who monitors emissions? Is there any direct benefit for reducing emissions or penalty for increasing them? What is traded? Aren't costs passed to consumers anyway? Who, exactly, benefits from the trades?

As usual, Mr. Handley makes perfect sense.