Explaining the flaws in cap-and-trade

By Paul Mulshine/The Star Ledger

Economist Greg Mankiw does so here and here.

The author of a popular economics textbook had this to say in 2009:

As all good economics textbooks teach (see chapter 10 of my favorite one), the virtue of market-based policies to deal with externalities is that they are more efficient than command-and-control regulations. In the case of carbon emissions and global climate change, putting a price on carbon is supposed to be a better substitute for government micromanagement.

Apparently, that lesson is lost on the writers of the bill now making its way through Congress. Although the bill changes incentives by putting a price on carbon, it also offers a large dose of command-and-control regulation. Essentially, the sponsors don't seem to believe that getting incentives right is enough.



Then there's this piece he did for the New York Times:

Among policy wonks like me, there is a broad consensus. The scientists tell us that world temperatures are rising because humans are emitting carbon into the atmosphere. Basic economics tells us that when you tax something, you normally get less of it. So if we want to reduce global emissions of carbon, we need a global carbon tax. Q.E.D.

That's assuming we need to reduce carbon emissions of course, a proposition that becomes more dubious by the moment. As I've noted, most of the global-warming alarmism is based on politics, not science.

Politically, cap-and-trade would enrich a whole lot of Wall Street traders happy, Blood and Gore. Scientifically, there is scant proof that cutting carbon emissions would have any effect on climate proportionate to the cost. What we need is a cost-benefit ratio and scientists can't come up with it.

In any event, Mankiw is perfectly right in his cost-benefit analysis. A carbon tax offset by an income tax cut would be good for the economy regardless of the effect on carbon emissions. Any tax on consumption is better than an income tax in terms of economic stimulus. And a carbon tax would fall disproportionately on foreigners, since we import so much oil. Taxing oil at the pump is really no different than taxing it at the wellhead, and a lot of those wellheads are in foreign countries.

And as Mankiw notes, cap-and-trade permits the politicians to hide a tax while collecting the revenue.

Mankiw's proposed global carbon tax would be far superior for another reason: Such a tax would hit India and China just as hard as Europe and the United States.

So why are the tree-huggers calling for cap-and-trade instead?

Because this is not an environmental movement. It's a political movement. And the politics favors those crafty enough to cash in, such as the aforementioned Blood and Gore.

In that regard, the stunt being pulled by these knuckleheads is among the most outrageous scams I've seen. They want surfers to send them about $10 for every new surfboard they buy. The money will be used to purchase "carbon offsets" to make up for the carbon emitted in the process of constructing the board.

No thanks, dudes. A board already costs as much as $800. If you think I'm going to send money off to some scammers who come up with some mythical carbon-reduction scheme in China or India, then you're dumb even by the standards of the global-warming movement.

Or maybe they're smart. I'd like to sit back in an office somewhere and collect a big salary by collecting money from credulous types who think they can aid the environment by handing me money.

It works for Al.

By the way, this is a perfect example of the superiority of a carbon tax. Buying these mythical "carbon offsets" means sending off your money with no guarantee of anything.

But if you paid a carbon tax and in return got a big cut in your income tax, you would have a tangible return on your investment. You could reduce that tax by driving less, for example. The only way you can reduce your income tax is by working less, and that also reduces your income.