6 Reasons a Carbon Tax is Better than Cap and Trade

  • Published on July 17th, 2009

cap-and-trade; carbon tax


Just when you thought no more ink could be spilled about the merits or political viability of a carbon tax versus a cap-and-trade, it has. With the House passage of the American Clean Energy and Security Act (ACES), also known as Waxman-Markey, a version of the bill is now being considered by the Senate. And while there are certainly things to both love and hate about Waxman-Markey, it may be the only hope we currently have for meaningful climate change legislation. But are there other options?

Now, I’m not saying in all cases a carbon tax is superior to a cap-and-trade, in fact, I may just write a “7 Reasons a Cap-and-Trade is Better than a Carbon Tax” post after this one. But in some instances, the straight tax does have its advantages.

1. A carbon tax provides more clarity and certainty of cost than does carbon trading. Whereas a cap-and-trade provides greater certainty in terms of capping emissions, it provides far less certainty in terms of revenue generation. The question I’m left with is: which is more important in the long run? If we just generate tons of revenue for the public or the state without controlling greenhouse gas emissions, then the policy is a failure. However, if we engage in some big carbon trading scheme, generate revenue for private interests and do nothing to control GHGs, then the policy goes well beyond failure.


2. Call it what it is. Both mechanisms — cap-and-trade and carbon tax — are essentially a tax. Republicans and other opponents of cap-and-trade are have taken a liking to calling it a “cap-and-tax” anyway. At least the carbon tax is up front about it.

3. Potential risk of a carbon market bubble bursting under the weight of “sub-prime carbon.” The US Commodity Futures Trading Commission estimates that the cap-and-trade market could grow to $2 trillion in five years. This system would create whole new classes of financial assets, which financial firms could securitize, derivatize, bundle, and who knows what else. A large carbon market would likely attract speculators, driving up the price of carbon permits and creating risky or low-value carbon credits. Writes Matt Taibbi at Rolling Stone: “the next bubble, is in carbon credits — a booming trillion- dollar market that barely even exists yet, but will if the Democratic Party that it gave $4,452,585 to in the last election manages to push into existence a groundbreaking new commodities bubble, disguised as an “environmental plan,” called cap-and-trade.

4. We have no idea how to regulate a carbon market. Existing financial regulations, as well as those in major cap-and-trade bills, are inadequate to govern carbon trading, creating a potentially huge regulatory gap, according to a report by Friends of the Earth.

5. A carbon tax may actually be more politically viable than cap-and-trade. Except for the fact that it has the word, ‘tax’, in it, from liberals to libertarians, the carbon tax mechanism is preferred by people from across the ideological spectrum who support action on climate. While they may accept the theory of a cap-and-trade, environmental groups like  Friends of the Earth and Greenpeace bemoan Waxman-Markey for handing out permits to the biggest polluters. Even Mr. Inconvenient, Al Gore, has been a vocal supporter of a revenue-neutral carbon tax. “I have long supported a sharp reduction in payroll taxes with the difference made up in CO2 taxes. We should tax what we burn, not what we earn,” Gore has said. But then again, citizen Gore is in a position to come out in support of a carbon tax, as John Laumer at Treehugger explains.

6. The carbon cap-and-trade in Europe has not performed well (the one that doled-out in stead of auctioning off carbon permits to the biggest polluters) has not been effective at lowering carbon emissions. Not only that, but the price of carbon has fallen precipitously on the European Climate Exchange.

By no means is this document intended to be the definitive argument in favor of a carbon tax. Rather it is intended to spark some debate and critical thinking. Since Congress is behaving like it is predestined to go with a cap-and-trade, it seems that critical thinking and debate is exactly what is needed at this juncture.

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About the Author

is the founder of ecopolitology and the executive editor at LiveOAK Media, a media network about the politics of energy and the environment, green business, cleantech, and green living. When not reading, writing, thinking or talking about environmental politics with anyone who will listen, Tim spends his time skiing in Colorado's high country, hiking with his dog, and getting dirty in his vegetable garden.


  • stop the oil minning!
    stop the gas minning!!
    stop the sweat shops!!!
    stop the diseases in poor countries!!!!
    stop the bad drinking water in africa!!!!!

  • Cap & Trade would require an expensive, slow, bloated, byzantine bureaucracy … and will be susceptible to political influence and downright corruption. A Carbon Tax, on the other hand, is transparent, logical, honest, and consistent at the point of combustion. The public will understand and support the Carbon Tax and will loathe Cap & Trade.

  • I am finding it increasingly disturbing to learn that despite all of the evidence to the contrary some people still think that humans are somehow responsible for global warming (now called climate changed since they discovered that the planet is now cooling again)

    Is it the case therefore that once some people's brains have been infected with global warming (sorry climate change) propaganda they find it impossible to think for themselves and continue with the mantra… boy some people really are thick.

    Educate yourselves – dummies.

    1 The planet is not warming any more

    2 We were never the cause for the hlaf degree rise in the last 100 years

    3 The planet has been significantly warming than it is now… we survived.

    4 CO2 – representing 0.54% of the atmosphere is GOOD – it's what makes us all grow.

  • There IS NO climate change. Its ALWAYS changing. There is nothing any human or group of humans can do. Stop being so arrogant in thinking that people can turn the temperature of the planet down like it was a thermostat in your home.

    Are all of the other REAL and tangible problems solved already? Problems like:

    -city gangs

    -illegal immigration

    -our pathetic education system

    -our out of control government/politicians that spend money like it was water and print more if they need it


    -increasing numbers of children being born into households without a father present

    -neighborhood littering and pollution (see we actually think its good to clean up the environment – just START IN YOUR OWN BACK YARD FIRST)


    -drunk driving murders

    -out of control outsourcing of jobs to other nations and to illegals under the guise of "they're doing the work that Americans dont want to do"… BULLSHIT. And people wonder where the tax revenue has gone???? What Einsteins are we dealing with here?

    -out of control traffic congestion

    -an aging infrastructure that needs repair, replacement and new development to support growing cities

    -a relatively non-existent rail transportation system that needs a serious overhaul and development

    The list can go on and on. The fact is, these are real and present problems with the United States and possibly other nations too. Climate change is ALWAYS going to be there because its ALWAYS changing. When people start discussing the precise problems this planet has seen over the entire 4+ billion years of its existence, WITH CONFIDENCE in their data, then maybe people will believe you.

    Stop being irresponsible in ignoring the issues that are real and tangible!

  • David-Instead of complex rules governing a "subprime carbon market," why not implement a simpler, fairer and more transparent revenue-neutral carbon tax?

    Ted-I disagree that a tax is a non-starter. In fact, I think that an electorate which understands a revenue-neutral carbon tax–a tax rebated to them with a tax-shift approach–(already supported by the majority of leading scientists, economists and opinion leaders anyway)can be a political winner, especially when compared to the debacle that has become the Waxman-Markey/ cap and trade debate.

    The bottom line is that a revenue-neutral carbon tax is superior to a cap and trade scheme on a number of levels (many of which are outlined here): not only does it avoid the creation of a complicated and convoluted "subprime carbon market," it also avoids the evasion and market manipulation inherent to cap and trade. Further, a carbon tax is more straightforward and transparent than cap and trade, incentivizes the creation of green technology, predictably reduces emissions AND returns the revenue to the people (especially attractive given these political and economic times.)

  • Ted- Point taken about the European experience. But in all honesty, my two-sentence summaries don't exactly do justice to any of the arguments. More than anything, they were attempts to simplify some of the most common arguments.

  • Congress needs debate and critical thinking, but it doesn't need this debate. In theory, a carbon tax looks great, but in the realm of the political it is a non-starter, pure and simple.

    We're not in the first quarter of the game. We're in the fourth. Cap-and-trade is on the court; carbon tax is in the showers.

    Cap-and-trade has made it because of the structure's ability to incorporate regional and industry interests into one system. That's the debate that Congress needs to pursue.

    Also, your two-sentence summary of the European experience does a disservice to people who don't know much about the subject. As you probably know, it is neither so simple or clear-cut.

    Ted Rose

    http :www.twitter.com/carbonhound

  • I think the clincher is the last point — if it is not working well in Europe why should we adopt it in the US. Too complex for an uncertain result. Carbon tax is simpler and the results more predictable.

  • Still learning and taking it all in–there's no use in crying of spilled ink, I guess. But thanks for sharing your thoughts and helping elucidate some arguments. I find this argument to be one of the most difficult to grasp with so many sides talking at once.

    Suneet Bhatt

    socialsymmetry.com / dream-village.org

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