I Love the Smell of Solar Finance in the Morning
A Congressional Budget Office report issued this month (pdf) at the request of the Senate Committee on Energy and Natural Resources found "[a] tax on emissions would be the most efficient incentive-based option for reducing emissions." Metric ton for metric ton, an emissions tax would derive a higher marginal benefit and incur fewer regulatory costs than any form of the cap-and-trade system. So why do none of the climate bills currently before Congress, nor any of the presidential candidates, support such a tax? Well, because they suck. A low initial emissions tax incorporating increases over time to reflect a long-term emissions reduction target would let companies grab low-hanging efficiency fruit first while continuing on their search for the killer amp.
Clear tax signals would allow emitters to build in a fixed cost assumption in their balance sheets. Conversely, a yearly cap and variable allowance costs would make companies pass costs on to consumer and labor pools in the near term, creating a much larger economic shock. It would also require a regulatory body to monitor allowances and instruments like safety valves, banking and borrowing. So why does the business community favor it? Well, because they suck. The complexity of a cap-and-trade system gives wiggle to companies looking to skirt their emissions allowances. Tack-on grandfathering provisions, data wrangling, and competing climate scientists and the only place a cap-and-trade system will go is straight to the D.C. Circuit Court of Appeals following years of protracted litigation. This Faustian bargain guarantees green cred for politicians and limited cost for companies, who would rather litigate than mitigate. Aside from cute, fluffy animals and our children, the biggest losers in this back room deal are the greentech companies. An emissions tax leads to increasing greentech investment and product development as companies look for ways to avoid emissions. As the tax increases, the technologies involved will need to increase in scale and efficiency. Under a cap-and-trade job cuts, plant closings, declining energy supply, and fuel cost hikes will do just fine, thanks. So greentech companies – get with the program. Doerr and Gore aren’t going to bail you out forever.
