Another Vote for a Carbon Tax
Steven Teles of New America Foundation and professor of political science at Johns Hopkins adds these thoughts on cap and trade:
Some people assume that because the actual incidence of cap and trade and a carbon tax are the same, that the political bargains that would be necessary to get them through are the same. I disagree, strongly, because all of the evidence of the policymaking literature suggests that policy design actually matters, even when holding the actual substance of policy constant. The lack of significance of policy design seems to be the substructure of the argument in favor of cap and trade over a carbon tax.
The carbon tax is actually, in policy terms, not just marginally better, but substantially better. First, a carbon tax does not require the construction of a market, which is a very complicated matter and one with lots of risk and lots of opportunity for rent seeking. Because there is no trading mechanism in a carbon tax, you don't take on the risk associated with market-making. Second, it doesn't matter when carbon is produced, even year to year. So it doesn't make sense to construct a market that is premised on stabilizing year-to-year fluctuations. It makes much more sense to set a constant price, rather than to allow the price to fluctuate to stabilize carbon emissions over time periods where they don't matter. Now, you can deal with some of that problem with C&T with various kludges, but only by making it more complicated. And it's already complicated. The more complications you introduce (all of which will need to be in the direction of making C&T function like a carbon tax), the more opportunity for rent seeking you create, because rent seeking feeds on complication.