Carbon Tax?

In a June 10, 2009 press release, the Republicans of the House Ways and Means Committee stated that they have all signed a petition which they hope Democrat members will also sign. The petition urges Congressman Rangell to schedule a mark-up on H.R. 2454, the cap and trade bill because they say it has tax consequences. The press release web version has a link to Congressman Dingell noting that cap and trade is a "great big" tax. He is not the first to note that the effect is like a tax. However, it isn't the same as a tax.

Where is the debate on cap and trade versus carbon tax? It is difficult to enact a new tax. Arguably, it is easier to enact a cap and trade, particularly is people are assuming that utility and transportation companies will bear the cost (with nothing passed on to them such as higher prices).

Here are a few comparison points of a carbon tax versus cap and trade:

Generate revenue? both can do this
Help hit a target? a cap and trade system is more likely to do this
Affect prices? both are likely to increase prices
Change behavior? a carbon tax is more likely to do this as it is more visible to consumers (assuming the tax is imposed at the consumer level)

If the US has a goal to reduce CO2 emissions, a good way to align tax system goals with environmental goals would be to have a carbon tax. It is a good polluter pays tax which can help people see that they cause climate change - not just large corporations. And to the extent corporations cause climate change, customers need an incentive to push them to change. Also, we need revenue, some of which could be used for research on how to reduce climate change.

It's too bad there hasn't been more discussion on carbon tax versus cap and trade.