Cap and Trade Under Attack – Say It Ain’t So, Mr. Nader

by Bill Chameides | December 8th, 2008
posted by Erica Rowell (Editor)

Permalink | 2 comments

Last week featured strange bedfellows and strange enemies: Ralph Nader teaming up with the Wall Street Journal, on the one hand, environmental activists storming a green group’s offices on another.

You’d think the environmental community would be uncorking the bubbly early this year. After eight long years in the legislative desert, we have a president and Congress committed to passing climate legislation. But any celebration is premature.

The Cap and Trade Wars

Anyone who thought passing climate legislation would be easy was disabused of that notion last spring when the Lieberman-Warner Climate Security Act went down in flames without even a vote. It seems that once things got serious, the solid coalition for climate action splintered into so many pieces of special interests and ideologies.

Now, as we get closer to Inauguration Day and the beginning of what many think could be America’s new green era, the divisions in the environmental community are mounting. Front and center is debate over the market-based, cap and trade system proposed to bring greenhouse gas emissions down while, at least in theory, allowing markets to minimize costs. At the time of Lieberman-Warner, everyone seemed to be on board with cap and trade, but there was always a segment of environmentalists that distrusted markets and favored a carbon tax instead. That segment is getting  louder.

For the record, on balance I favor a cap and trade. The reason is straightforward: a cap is the only way to ensure that emissions will actually go down. A carbon tax can only encourage emissions reductions, not ensure them. However, I also see some attractive features to a carbon tax – it’s probably simpler to administer, and, in light of Wall Street’s recent meltdown, I am a little wary of entrusting our climate future to markets. So while my balance sheet puts cap and trade at the top, I think reasonable people can disagree.

But can we disagree in a reasonable way? Memo to Rising Tide: occupying the offices of an environmental advocacy group with signs and name-calling is probably not the way to build the strong coalition needed to get climate legislation passed in the face of entrenched opposition.

And, Mr. Nader, it’s fine to argue in favor of a carbon tax, but the arguments have to make sense.

Nader’s ‘Global’ Carbon Tax

Ralph Nader does not like cap and trade. In a recent opinion piece, he argues that it will not cut global emissions if it is not adopted by all countries (“We Need a Global Carbon Tax,” Wall Street Journal, December 3, 2008, A17 ). He is, of course, correct. This global problem needs global participation. It won’t work without China — or without the U.S.

Now comes the sleight of hand – Nader argues that since China will never agree to an emissions cap (not necessarily the case), we should just impose a “global” carbon tax. That  way, he reasons, every country’s emissions will go down. Voila, problem solved.

But wait a minute. If China won’t agree to a cap, why would it agree to impose such a tax? And if it didn’t, how are we any better off than a cap and trade without China? Getting the global community to participate in a climate solution is a serious challenge, but not one that is solved by ditching cap and trade for taxes.

And isn’t the notion of a “global” carbon tax a little far fetched. I can see the United States imposing a carbon tax on its own businesses, but how do you devise a global carbon tax? It certainly would not be an international tax. Can you see Americans agreeing to pay taxes to an international body?

Nader proposes that the taxes would be administered nationally and collected by the each nation’s government. I assume, then, that the amount of tax per ton of carbon would be set by international agreement – much in the way caps are set in a cap and trade. But every nation has its own currency, whose value constantly changes. What standard would be used to set the tax? Would it be the dollar? A barrel of oil?  The Yuan? Would the tax rate in any given country have to be adjusted every time its currency went up or down in value relative to the standard? Can you imagine what would happen if a tax rate here changed every time the dollar’s value moved? Wouldn’t governments have the ability to game the system by manipulating the value of their currencies?

Carbon taxes maybe. But a global carbon tax? I think not.

Deck Chairs on the Titanic

A friend of mine wrote to me recently that “the tide is turning in favor of a carbon tax.” Maybe so, but one thing is for sure: the environmental community is going to have to get its act together, if climate legislation is to be enacted

The protest group that occupied the offices of Environmental Defense Fund moved the chairs around to symbolize the folly of cap and trade – “like moving the deck chairs around on the Titanic.” If climate legislation doesn’t get passed because the environmental community could not reach common ground, we may look upon this entire debate as moving the deck chairs around on the Titanic.

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  1. Mark Masselink
    Dec 9, 2008

    While I agree with your opinion that a global carbon tax instituted by a supra-national organization will not happen, that does not disqualify a US carbon tax. In fact, since the US could also tax the imputed carbon emissions associated with imports from nations who chose not to impose their own carbon tax, a US carbon tax would be a path to meaningfully limit carbon emissions even without cooperation from other nations, such as China.” title=”carbon tax

    • erica
      Dec 11, 2008

      Dr. CHAMEIDES responds – Hi Mark and thanks for weighing in. I agree a national tax could work — not my first choice but one I could accept. And absolutely a border tax could help limit China’s and other non-participants’ emissions — a similar kluge could and would have to be designed for a cap and trade. There are, however, some international trade treaties that would have to be worked around.” title=”right

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