I don't think that government action on greenhouse gasses is justified. That's not to say that man is not helping nature warm the planet some, its that the man-made warming, when you strip away the exaggerations, does not justify the cost of preventing it. Since I wrote 80+ pages on it here, I won't delve much further into it.
However, if we are going to take action, a carbon tax is way, way better than cap and trade. I used to think that cap and trade made more sense, but I have changed my mind. Cap and trade systems have a lot of potential for error and abuse, but there is one issue that is not adequately discussed: They are also a huge subsidy and protection for current businesses, effectively penalizing new entrants.
Why? Because most cap and trade systems begin by giving out emissions credits to current industry incumbents. These are credits that new entrants will have to purchase, tilting the playing field in favor of current industry leaders. This is the kind of thing Europeans love, because their largest business interests effectively control the government and keep out new competition, causing their economies to stagnate. Steven Milloy is one of the few folks raising the red flag on this issue:
the LCEA, the federal government would annually issue rights or
"allowances" to emit GHGs. In the first year of the bill, slated as
2012, allowances would be issued for approximately 6.65 billion metric
tons of GHGs. The amount of allowances slightly decreases every year "“
for example, 6.59 billion metric tons in 2013, 6.53 billion metric tons
in 2014, etc. "“ until it finally levels out at 4.82 billion metric tons
in 2030 and beyond.
These allowances have monetary value "“ a lot.
of allowances can either use them to pay for their GHG emissions or
they can sell them to other emitters who need allowances. Emitters can
also simply pay the federal government directly to emit GHGs at a cost
of $12 per metric ton of carbon dioxide starting in 2012. This price is
slated to increase annually by the inflation rate plus 5 percent. By
2030 "“ and unrealistically assuming that no inflation occurs "“ the
pay-to-emit price would be about $27.50 per metric ton of carbon
Using the pay-to-emit price, the GHG emissions
allowances issued by the federal government in 2012 will have a
potential market value of $80 billion. The annual market value of these
government-issued allowances will rise to over $100 billion by 2018 and
hit $130 billion in 2030. It will only take about 10 years "“ exclusive
of any inflation "“ for value of the allowances issued by the government
to exceed $1 trillion.
And incredible as it sounds, the bulk of
these allowances "“ 76 percent for the first five years, declining to 47
percent by 2030 "“ will be given away at no charge to special interests
including private industry, farmers and states. This global warming
giveaway works out to a total of $1.34 trillion of free money "“ not
adjusted for inflation "“ that would be handed out to global warming
special interests from 2012-2030. After 2030, the annual amount of free
money handed out is about $65 billion, increasing by 5 percent per
year, exclusive of inflation.
Unfortunately, politicians will always favor an indirect tax over a direct tax because they are gutless and entirely free of any nagging principles. Cap and trade systems would raise consumer prices at least as much as a carbon tax, but the price increase would appear to be made by industry and not due to a visible government tax. Congress can point the finger at industry and say, it's not our fault, it's those greedy guys in industry driving up prices.
Further, the carbon tax is hard to game. Everybody pays. But cap and trade - Oh the beautiful potential to milk various constituencies for donations! If the government sets up a program where some groups get credits for free, and some have to pay for them, well of course every industry is going to pour millions upon millions into politician's hands trying to make sure they are in the favored group.
What a mess. We are already seeing the huge distortions coming from nutty ethanol subsidies, and that is due to the pressure of just one industry (farmers and ADM). Just think of the distortions form this program. There may be a good chance that misguided attempts to manage greenhouse gasses may well be the largest threat to the American economy and free marketplace, well, ever. Which, by the way, is why every Marxist and socialist on the face of the earth are right at the forefront of the global warming movement.
If you suspect that the world may be warming, but not nearly enough to justify such costs in terms of both dollars and lost freedom, you might want to read this.