Cap-and-trade bookkeeping

In testimony today to the House budget committee, Peter Orszag, the head of the Congressional Budget Office, makes an interesting point about the fiscal implications of a cap-and-trade regime for carbon emissions. Suppose carbon permits are given away to suppliers and industrial users of energy. The proper way to score them in that event--"a solid case can be made", is how Orszag puts it--would be to count the value of  the permits as both revenues and outlays, as though the beneficiaries had bought the allowances at value and then been handed the money straight back. What difference would that make? None to the budget deficit, or to the price signal for carbon abatement. But it would show a rise in public spending in the form of grants to the companies concerned. That would presumably alter the politics, and for the better.



Thanks to Greg Mankiw for the CBO link. Greg sums the issue up this way, in his "fundamental theorem of carbon taxation":



cap-and-trade = carbon tax + corporate welfare



So those who say a carbon tax is politically impossible are not quite right. If we go to cap-and-trade, we will have one. It will be hidden, and most likely badly designed, but we will have one. That is why an even more solid case can be made for auctioning the
permits, rather than giving them away. And the most solid case of all is the one for a
straightforward carbon tax.

Presented by

Google Street View, Transformed Into a Tiny Planet

A 360-degree tour of our world, made entirely from Google's panoramas

Join the Discussion

After you comment, click Post. If you’re not already logged in you will be asked to log in or register.

blog comments powered by Disqus

Video

Google Street View, Transformed Into a Tiny Planet

A 360-degree tour of our world, made entirely from Google's panoramas

Video

The 86-Year-Old Farmer Who Won't Quit

A filmmaker returns to his hometown to profile the patriarch of a family farm

Video

Riding Unicycles in a Cave

"If you fall down and break your leg, there's no way out."

Video

Carrot: A Pitch-Perfect Satire of Tech

"It's not just a vegetable. It's what a vegetable should be."

Video

The Benefits of Living Alone on a Mountain

"You really have to love solitary time by yourself."

More in Business

Just In