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Carbon Tax Proponents in Copenhagen and Washington Steadfast, Lonely

COPENHAGEN—The economic outlook may be daunting, and everyone in Copenhagen agrees on the need to cut CO2 emissions, but just how to stimulate investment in low-carbon technologies is a long-standing and contentious issue. Repeating a position he has long argued passionately, Yale University economist William Nordhaus said yesterday that the current approach, setting a Kyoto treaty–style international goal of cutting a certain amount of emissions by a certain date, would be a mistake. (He's joined in this argument by James Hansen, who lacks Nordhaus’s economic expertise but offers considerable scientific gravitas.)

Yesterday in a plenary session, Nordhaus repeated his long-standing preference for a carbon tax, which sets a price for carbon emissions, not an emissions goal.

He told scientists that having "an internationally harmonized system of carbon taxes" would be much more efficient, from an economic standpoint, than emissions caps. According to Nordhaus, small countries would not have to worry about achieving certain emissions levels, the system would be much less prone to corruption or cheating, and taxes, "while hated," are a long-standing and "proven" financial instrument. "They're not something that you need to invent overnight to solve an important problem. … It is unlikely that the Kyoto model, even if it is strengthened [here in Copenhagen in December] as it is currently envisioned, can achieve its climate objectives in an efficient and effective manner. To get the world's climate system and global environment on this untested approach, with such clear structural flaws, is in fact a reckless gamble," Nordhaus says. At the very least, he says, the Kyoto treaty should be modified to allow countries to fulfill their obligations through joining an international carbon tax process.

Nordhaus's strategy has a lot of opponents, many of them strong environmentalists—here is a good argument against the idea. Still, in Washington last week, Representative John Larson (D–CT) introduced a bill in the House of Representatives to set up a carbon tax system. With leadership on Capitol Hill and in the White House committed to a cap-and-trade system, the bill is likely doomed, but that hasn't stopped Larson from advocating the tax approach in The New York Times.

"The American people want us to level with them," Mr. Larson, a moderate Democrat from Connecticut and a member of the House leadership, said in an interview. "We create price certainty without any new bureaucracies or complicated auction schemes."