Fight disinformation: Sign up for the free Mother Jones Daily newsletter and follow the news that matters.

A few days ago I took Jeffrey Sachs to task for a post he wrote supporting a carbon tax in preference to cap-and-trade.  Over the weekend he sent me a response.  I’ll probably have a reply later today, but in the meantime, here’s Sachs:Kevin Drum is certainly right that a cap-and-trade system potentially can look a lot more like a carbon tax than actual cap-and-trade systems have done in the past.  My worries are about the reality of such systems, not the theory.  Both the Waxman-Markey draft bill and the actual experience of the European Union Emissions Trading System (EU ETS) give me concern for the reasons that I mentioned.  While a tax can be levied at a few upstream points, the EU ETS involves around 12,000 enterprises and the draft Waxman-Markey bill would apparently involve several thousand US sites as well (essentially all industrial units which emit more than 25,000 tons of carbon dioxide equivalent greenhouse gases). We would create for essentially no reason a highly expensive, Wall-Street-based system of permit trading and enterprise compliance that could be substituted by an easy-to-implement upstream tax.  Mr. Drum correctly notes that the Waxman-Markey proposal is both upstream and downstream.  I do indeed like the upstream part. The fact, however, that it is also a downstream system, which is the administratively cumbersome part that would be avoided by an upstream carbon tax.

As for the lack of price predictability, the price fluctuations of the EU ETS are notorious.  Emissions prices actually collapsed for Phase I permits at the end of that phase (2007), and recently emission permit prices have declined from more than 30 euros per ton in 2008 to less than 15 euros this year.  Some European economists are arguing for a floor price in the EU ETS, which indeed would make it much more like a tax.  I disagree with Mr. Drum that we should see the trading system as a helpful macro stabilizer and therefore like the fact that the price on carbon emissions has collapsed. We need a stable carbon price into the future to give the right incentives for a new generation of low-emissions technology development and adoption, and should use other economic instruments for cyclical policies.

I agree with Mr. Drum that an emissions system can cover most of the economy like an upstream tax, but in practice the EU ETS covers only around 50 percent of the economy.  The Waxman-Markey bill aims for much more, so perhaps I’m too pessimistic on that count and Mr. Drum is correct, but we’ll see once the negotiations proceed further.  As for revenues and for revenue transparency, I still believe that a tax is the right way to go. I am not very confident about the fairness of backroom haggling over emissions rights now underway in Washington, or which has characterized the EU ETS.  I think that the tax approach can be more direct and visible, and less vulnerable to unfair insider dealing.

Finally, I would like to remind Mr. Drum and his readers that I stated clearly in my brief Yale article cited by Mr. Drum that either a tax or a cap-and-trade system is far superior to the status quo.  We are arguing about matters that are less than essential.  If Congress actually adopts a cap-and-trade system, that would be a huge advance. In fact, putting a market price on carbon emissions (through either a tax or permit system) is just one modest part of a truly comprehensive and effective carbon mitigation strategy, that must involve standards, R&D, demonstration projects, and many other kinds of incentives and public policies.

Sachs is, among other things, Director of the Earth Institute at Columbia University and author of The End of Poverty: Economic Possibilities for Our Time.

AN IMPORTANT UPDATE

We’re falling behind our online fundraising goals and we can’t sustain coming up short on donations month after month. Perhaps you’ve heard? It is impossibly hard in the news business right now, with layoffs intensifying and fancy new startups and funding going kaput.

The crisis facing journalism and democracy isn’t going away anytime soon. And neither is Mother Jones, our readers, or our unique way of doing in-depth reporting that exists to bring about change.

Which is exactly why, despite the challenges we face, we just took a big gulp and joined forces with the Center for Investigative Reporting, a team of ace journalists who create the amazing podcast and public radio show Reveal.

If you can part with even just a few bucks, please help us pick up the pace of donations. We simply can’t afford to keep falling behind on our fundraising targets month after month.

Editor-in-Chief Clara Jeffery said it well to our team recently, and that team 100 percent includes readers like you who make it all possible: “This is a year to prove that we can pull off this merger, grow our audiences and impact, attract more funding and keep growing. More broadly, it’s a year when the very future of both journalism and democracy is on the line. We have to go for every important story, every reader/listener/viewer, and leave it all on the field. I’m very proud of all the hard work that’s gotten us to this moment, and confident that we can meet it.”

Let’s do this. If you can right now, please support Mother Jones and investigative journalism with an urgently needed donation today.

payment methods

AN IMPORTANT UPDATE

We’re falling behind our online fundraising goals and we can’t sustain coming up short on donations month after month. Perhaps you’ve heard? It is impossibly hard in the news business right now, with layoffs intensifying and fancy new startups and funding going kaput.

The crisis facing journalism and democracy isn’t going away anytime soon. And neither is Mother Jones, our readers, or our unique way of doing in-depth reporting that exists to bring about change.

Which is exactly why, despite the challenges we face, we just took a big gulp and joined forces with the Center for Investigative Reporting, a team of ace journalists who create the amazing podcast and public radio show Reveal.

If you can part with even just a few bucks, please help us pick up the pace of donations. We simply can’t afford to keep falling behind on our fundraising targets month after month.

Editor-in-Chief Clara Jeffery said it well to our team recently, and that team 100 percent includes readers like you who make it all possible: “This is a year to prove that we can pull off this merger, grow our audiences and impact, attract more funding and keep growing. More broadly, it’s a year when the very future of both journalism and democracy is on the line. We have to go for every important story, every reader/listener/viewer, and leave it all on the field. I’m very proud of all the hard work that’s gotten us to this moment, and confident that we can meet it.”

Let’s do this. If you can right now, please support Mother Jones and investigative journalism with an urgently needed donation today.

payment methods

We Recommend

Latest

Sign up for our free newsletter

Subscribe to the Mother Jones Daily to have our top stories delivered directly to your inbox.

Get our award-winning magazine

Save big on a full year of investigations, ideas, and insights.

Subscribe

Support our journalism

Help Mother Jones' reporters dig deep with a tax-deductible donation.

Donate