Drs. W. Chameides and M. Oppenheimer (Policy Forum, 23 Mar., p. 1670) claim that the cap-and-trade approach is better than pollution fees (carbon tax) because cap-and-trade goals are deterministic. However, formulating goals does not equal achieving them. Cap-and-trade may be better in a utopian setting, but the pollution fee approach would work much better in the real world, especially if the fees are fully refunded on a democratic basis, say, to build a political lobby in favor of the "polluter pays" approach.
The cap-and-trade scheme invariably begins with allocating pollution credits to the biggest polluters and postpones the heavy lifting. By the time the rubber hits the road toward the end of the obligation period, the profiteers are long gone, politics kicks in, and the goals get postponed because they appear too onerous.
In contrast, the exact costs of a (graduated) emission tax are known in advance and businesses can plan over the longer horizon. The correlation between the tax levy and the emission reduction can be easily quantized over the timescale of a few years as the effects unfold and the tax rates are fine-tuned to achieve the emission goals. The tax approach affords a distinctly better corporate planning environment compared to the recent wild gyrations of the European carbon market in response to regulatory revelations at a late stage in the Kyoto cap period. The pollution tax approach would also avoid the windfall profiteering scenarios that are currently occurring in China and India due to European emission offsets.
Sunil Somalwar
Professor of Physics, Rutgers University
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