environment
The U.S. has finally come to accept that something needs to be done about global warming. The question now is how to do it. The fact that we don’t know how much of a reduction in emissions is necessary or how much a given reduction will cost makes the choice very difficult. Although the cap-and-trade has become the mechanism of choice in the United States and is the clear favorite for curbing greenhouse gases (eg. the Environmental Defense Fund supports cap-and-trade), there are still doubts. For one thing, as Samuelson says “no plausible ‘cap and trade’ program would significantly curb global warming.” For another, with quantity-based systems, there is no yardstick for determining equity among countries. Since the main reason the United States gave for refusing to ratify the Kyoto Protocol was that undeveloped countries were not asked to do their fair share, this is no small problem.
In theory, using a price-based mechanism like a carbon tax would be better 1) nationally because incentives could be set at an affordable level and the market used to find cost-effective solutions and 2) internationally because having every country control to same marginal cost would be a good basis for equity. But politically the carbon tax is impossible and any politically acceptable tax would be insufficient to have much impact.
It is to resolve this impasse that a feebate makes perfect sense: it uses prices to drive reductions in greenhouse gas emissions but it does so without collecting any net revenue.
Continue reading ‘A Feebate for Greenhouse Gases: Better than Either a Cap-and-Trade or a Carbon Tax’
