Carbon Tax Inevitable, Analysts Say

By Nathan Burchfiel | July 7, 2008 | 8:23pm EDT

( - A tax-based approach to reducing carbon emissions "is going to happen," a panel of economists and tax analysts agreed Tuesday, differing only on whether a carbon tax or a cap-and-trade system would be the best approach.

"This is going to happen anyway so we might as well enjoy it," Eric Toder, a senior fellow at the Urban Institute, said during a discussion at the organization's Washington, D.C., headquarters. "And maybe something good will come of it."

Toder and three other panelists discussed the costs and benefits of the two approaches to reducing emissions of carbon dioxide (CO2), which some scientists believe contributes to global climate change.

The panelists ruled out direct federal government regulation of emissions and tax credits for "doing good things," describing those as "inefficient" ways of addressing the issue.

A cap-and-trade system would place limits on how much CO2 industries may emit, and allow heavy emitters, such as power plants, to trade carbon "credits" with others that emit less.

A carbon tax would simply apply a tax to carbon emissions, creating an incentive to reduce the emissions to avoid the tax.

A carbon tax "gets the incentives right," said Rob Williams, an associate professor of economics at the University of Texas at Austin. He suggested such a tax could raise $100 billion per year in revenue.

Cap-and-trade credits are also "worth a lot of money," argued Terry Dinan, an economist at the Congressional Budget Office. She pointed to the success of sulfur emissions caps in the 1990 Clean Air Act as evidence that the cap-and-trade approach could succeed in reducing CO2 emissions.

A bill currently in the U.S. Senate would create a cap-and-trade system for electricity plants and set carbon emissions standards for automobiles, beginning in 2016.

Drafted by Sen. Bernie Sanders (I-Vt.), the measure is under consideration in the Environment and Public Works (EPW) Committee.

Toder said it is likely that any proposal that ends up passing will include tax incentives and a major public relations push, because "any kind of new tax is likely to create a tremendous amount of resistance."

"Given political realities, tax incentives will have to be part" of whatever bill is passed, Toder said. "You would really need to make the offsets very, very compelling to get people to agree to it."

He suggested a revenue-neutral approach that would apply tax cuts from other areas to make up for the increased revenue from a carbon tax or sales of emissions credits. "If you were really interested in doing it for environmental reasons," he said, "you would need to give away at least as much money as you raised in order to make it sell."

As Cybercast News Service previously reported, EPW Committee Chairman Barbara Boxer (D-Calif.), has pledged to push legislation that addresses carbon emissions. The proposal, however, has been in her committee since January without action.

In a reversal from his previous skeptical stance on global warming, President Bush last week announced a new approach.

"Climate change must be addressed in a way that enhances energy security and promotes economic growth," the White House said in a statement Thursday.

See Related Stories:
Gingrich, Kerry Agree on Global Warming but Not on Fix (April 11, 2007)
McCain Sides With Leading Dems on Global Warming (May 23, 2007)
Democratic Hopefuls Sign on to Global Warming Bill (May 10, 2007)
Cap and Trade Policies Could Hit Poor Hardest, Studies Show (May 11, 2007)

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