This non-technical paper provides some straightforward arguments against the current legislative proposal to reduce carbon emissions via cap and trade. The two authors believe global-warming is a serious problem and carbon emissions need to be addressed—but cap and trade legislation is not the way to do it. Their proposal is for the federal government to implement a more efficient carbon tax on the production of oil, coal, and natural gas.
Avi-Yonah and Uhlmann argue that while cap and trade provides benefit certainty—i.e. the government can set obtainable reductions in carbon emissions—it does not provide cost certainty. Other deficiencies in cap and trade include: 1) the likely delay in implementation due to prolonged litigation by effected parties; 2) problems of setting base-lines for emission targets and how to price them; 3) such a program is untested on a global scale; 4) the legislation would allocate allowances for free—which could lead to abuse by members of Congress as the distribute allowances to constituents and donors; 5) and this type of program would be difficult to enforce.
The authors feel the need for a tax because of the classic argument of externalities. They say a carbon tax should be imposed on all oil, coal, and natural gas production. They like it because it “captures what is now an externality, namely the harmful effects of carbon dioxide emissions.” A carbon tax is easier to implement and would start to reduce carbon emissions faster (the Lieberman-Warner Climate Security Act of 2008 is over 300 pages while the carbon tax proposal by Rep. John B. Larson was only 17 pages.) The carbon tax creates greater economic efficiency as it provides greater cost certainty to the producers of coal, oil, and natural gas—something cap and trade does not.
If one is looking for arguments to use against cap and trade legislation in the upcoming debate they would be wise to read this paper.