Someone asked me recently which I would prefer — cap and trade or a carbon tax. I replied that his question was a bit like asking me if I'd like to have my thumb smashed with a hammer or a brick.
With the Obama administration so focused on health care reform legislation, we've had a respite from any serious discussion about greenhouse gases and tax policy. Veteran Washington observers seem to think a Democratic–controlled Congress will be reluctant to engage in another prolonged fight over the environment in the wake of the damage caused by the bitter and highly partisan war over health care. At least not until the smoke has cleared from the battlefield.
Some believe nothing will happen on that front until after the November elections, and then it's hard to say what the makeup of the House and Senate will look like. Even if the Republicans fail to gain control of either chamber, they are likely to win additional seats in both bodies, a common occurrence in off–year elections. The "out" party typically picks up seats as public opinion about a newly elected President begins to drop in the polls after the initial "honeymoon." This is likely to be especially true as the economic recession lingers and the party in power gets the blame. Significant Republican gains in Congress may be a setback for a carbon tax and possibly cap and trade as well, but not necessarily.
The regulation and taxation of hydrocarbons (coal and petroleum products) and hydrocarbon emissions is not likely to be as partisan as the health care debate. Democrats from oil–producing states and coal–producing regions often vote against their party leadership in these matters, and Republicans from places like Maine and New Hampshire will frequently vote with the Dems on environmental issues.
During the 2008 presidential campaign, both Barack Obama and John McCain supported reduction of greenhouse gas (GHG) emissions through a cap–and–trade system. However, this issue seems to have become less of a priority for Obama after he assumed office due in part to the single focus the Democrats have had on health care. Still, it is not likely to be dropped entirely, especially since it is one issue that has bipartisan support (as well as bipartisan opposition).
Opponents to climate change legislation say that immediate action isn't needed because the scientific case that carbon dioxide and other greenhouse gases contribute significantly to climate change has yet to be made. There are reputable scientists who disagree with this theory. This group is also concerned because other nations haven't taken action to limit their emissions, and if the United States adopts unilateral limits, it would undermine our ability to compete in the global economy. Another argument is that GHG restrictions would place a disproportionate burden on low– and middle–income families.
Some proponents of regulation, recognizing that the price of goods and services will be adversely impacted by GHG restrictions, propose relief to affected families through direct payments or through the tax system. Fiscal conservatives don't like higher taxes and greater public debt and don't find this option to their liking either.
Most thoughtful people on both sides of the issue are concerned that implementing a stringent emissions policy during the current economic recession would be counterproductive. It could conceivably delay the recovery, which has been slow anyway.
I can't help thinking there must be a better way to achieve the same objective. Taxes tend to be punitive. Instead of rewarding success, we would penalize it with a carbon tax. And wouldn't a cap–and–trade program just shift the emissions from one company to another on paper without really reducing them?
In addition, the European experience with cap and trade shows us that the administration of the program requires the expenditure of new government resources for administration, regulation, and enforcement. It short, it expands government and creates a new bureaucracy.
In my view, neither a new tax on carbon emissions nor a cap–and–trade program would accomplish the goal of reducing GHG emissions into the atmosphere, and the economy would likely suffer if we tried to impose either during a period of slow economic recovery. A policy of benign neglect may be the best course of action at this time. By the time the economy improves, we may come up with a better alternative
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