11/2/10 1:15 PM
Yale Environment 360: Putting a Price on Carbon:<br /> An Emissions Cap or a Tax?
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Putting a Price on Carbon:
An Emissions Cap or a Tax?
The days of freely dumping greenhouse gases into the atmosphere are coming to an end, but how
best to price carbon emissions remains in dispute. As the U.S. Congress debates the issue, Yale
Environment 360 asked eight experts to discuss the merits of a cap-and-trade system versus a
A broad spectrum of people concerned about global warming and U.S. energy independence agree on one basic truth:
Sooner or later, emitting planet-warming greenhouse gases is no longer going to be free. Whether it comes this year, or
next, or in five years’ time, legislation imposing a price on burning fossil fuels seems all but inevitable.
Any law that places a price on carbon must achieve two basic and interrelated goals: discouraging — with increasingly
painful economic consequences — the use of oil, coal, and natural gas, and encouraging the development of renewable
sources of energy. Two paths to this end have been proposed. The first is a cap-and-trade system, which would place
progressively stricter limits on fossil fuel use; require power plants, industries, and other major sources of greenhouse
gases, to purchase permits to discharge carbon dioxide; and establish a market in those permits. The second is an
outright tax on fossil fuels. Proponents of both methods say the economic hardship created by higher energy prices could
be offset by rebates to taxpayers.
The cap-and-trade option has attracted far more attention and has many more supporters, including President Obama,
key Congressional leaders, and an influential coalition of environmental groups and big businesses, including General
Electric, Dow Chemical, Shell Oil, and Duke Energy. Congressional leaders say they hope to pass a cap-and-trade bill by
year’s end, but whether they can achieve that goal remains a major question.
Supporters of cap-and-trade argue that it has two main strengths. It sets a steadily declining ceiling on carbon emissions,
and, by creating a market that rewards companies for slashing CO2 (corporations that reduce emissions below their
allotment can sell them on the open market), it uses the free enterprise system to wean the country off fossil fuels and
onto renewable energy. Proponents of a carbon tax say their plan has one overriding benefit: Its simplicity. They contend
that by imposing a predictable and steadily increasing levy on fossil fuels, the carbon tax will also drive development of