CBO: CO2 tax the best move on climate change

Bob Tippee

The Congressional Budget Office is right to favor a tax on carbon dioxide over other possible US responses to climate change. But it omits an important reason.

In a February report, CBO compares a CO2 tax with an inflexible cap and two cap-and-trade systems.

It uses three criteria: efficiency, implementation considerations, and consistency with mitigation efforts elsewhere in the world.

CBO considers a CO2 tax the best option. Net benefits of a tax could be five times those of an inflexible cap, the worst option, CBO says.

Second-best, according to the agency, would be a cap-and-trade system with a price ceiling plus either a price floor or banking provisions. Cap-and-trade schemes set limits on total CO2 emissions and assign emission allowances to regulated companies. The companies can sell allowances they don't use and buy extra allowances they need.

A price ceiling would limit unexpected cost surges and help coordinate a US system with those in use elsewhere. Under banking provisions, companies could hold allowances for use in the future.

Third-best in CBO's ranking is a cap varying with the price of allowances along with banking plus either of two other features: a limit on how much the cap could tighten if allowances exceeded a certain price or the ability, adjustable by government, to borrow future allowances for earlier use.

Obviously, the cap-and-trade schemes require government intervention. CBO doesn't say so, but so large an official hand in potentially so large a market would create opportunities for corruption. Small details about system design, implementation, and operation could be worth big money to people willing to pay for advantage.

But that's not the missing reason to favor a straight-up tax as a tool for discouraging CO2 emissions.

However they came about, meaningful cuts in CO2 emissions would be painfully expensive. People, not businesses, would bear the burden. Inflexible caps and cap-and-trade schemes are just camouflage.

Governments determined to require CO2 cuts despite questions that the effort can affect global temperature must warn people about the cost. Proposing a tax is the clearest way to do it.

It is, in fact, the only honest option.

(Online Feb. 22, 2008; author's e-mail: bobt@ogjonline.com)

Related Articles

Judge bars Anadarko e-mails as evidence in Macondo blowout hearing

03/21/2014 A federal district judge in New Orleans refused to accept e-mails between Anadarko Petroleum Corp. and BP PLC as evidence in a hearing to determine...

BOEM extends proposed higher offshore liability limit comment period

03/20/2014 The US Bureau of Ocean Energy Management added 30 days to the public comment period for its proposed higher liability limit for offshore oil and ga...

Begich objects to House Democrats’ NPR-A comment extension request

03/18/2014 US Sen. Mark Begich (D-Alas.) let three US House Democrats know he did not approve of their request for the US Bureau of Land Management to add 30 ...

EPA lifts post-Macondo contract suspension in agreement with BP

03/14/2014 The US Environmental Protection Agency and BP PLC reached an agreement that will effectively end the bar on new federal contracts imposed on the mu...

Careers at TOTAL

Careers at TOTAL - Videos

More than 600 job openings are now online, watch videos and learn more!


Click Here to Watch

Other Oil & Gas Industry Jobs

Search More Job Listings >>
Stay Connected