Monday, June 16, 2008

Bad Etiquette or Myth of Cap and Trade

A few days ago, Robert Samuelson came out with an article regarding carbon economics with some insight on the efficiency of cap and trade v. carbon tax. Here is what he wrote towards the end of the article:

But if we're going to try to stimulate new technologies through price, let's do it honestly. A straightforward tax on carbon would favor alternative fuels and conservation just as much as cap-and-trade but without the rigid emission limits. A tax is more visible and understandable.

I dugg the article on Digg and made a comment. A user at Digg replied here to my comment saying:

a coersive (sic) tax where there is no opt out possibility is not honest - it is theft.

I really don’t mind being proved wrong over and over again, but a short reply like that with little to no context is more frustrating than progressive. Now, before I go on, let me state that I don’t disagree with that statement. In fact, considering my political leanings, I agree for the most part. However, there are two main problems with his rebuttal.

First, it’s not really a complete answer. In the sense that I have to ask myself since all taxes are coercive, aren’t all taxes theft? I hope for the sake of how he answered that remark, that he means it in those terms. And in that sense, he’s right. All of those taxes are theft, and, I, being always adept to social libertarian anarchism, agree in saying that all taxes are coercive to an extent.

I also hope that you, the reader, understand how his comment seemed, well, rather short. Moreover, and more important, there seems to be a miss in linguistic logic. While a tax could be, or is theft, how is it “not honest?” This is where his having to be a social libertarian anarchist is a necessity for his argument. You see, in my opinion, for the tax to be honest, we should be able to say that I don’t want that, so I’ll vote for someone who will make sure this does not happen. But what if the average voter does not have enough power as a political action committee, or other lobbying firm? Then, of course, no matter what we vote, only those in positions of power will see policies that they like. If you believe that, then you can tell me that the tax is not honest; only in the sense that our own government is illegitimate, which I will gladly leave for you to decide.

But here’s the second part/problem with that answer. Since the entire article was meant to culminate to, “A tax is more visible and understandable [when compared to cap and trade],” then one could reason that the replier meant to discredit the tax opposed to cap and trade. Such an argument, I will happily rejoinder and try to reason against.

With a tax, the price is put on carbon, and only carbon. You can make however much you want of whatever you want, but if x is coming out of your factory, you will be taxed at this rate for x. If the commenter favored cap and trade over the tax, then he would have to admit that it is the exact same goal.

With cap and trade, the government says that you are only allowed to produce x amount of carbon, which we will give you permits for. The minute you run out permits, you have to purchase more from other companies who may have extra. Creating a market like this would actually cost money because it will need to be regulated in order for corruption and rent seeking elements to remain minimal.

So, if we are willing to admit that taxes are thievery, I would still argue that cap and trade is probably worse because now a new market has been created where companies will spend money to buy pollution permits. And the costs of buying those permits will go to the consumer, just like the tax, but with cap and trade the extra costs of regulating another market leave it struggling to keep up with the efficiency of a tax.

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