The Great Debate – How to Control Carbon
Is it easier to control carbon emissions by managing the price of carbon and or by fixing the amount? The big target needs to be sensible energy management and reducing out overall global carbon footprint before the third world countries all try to catch up with out per capita extravagance.
Cap-and-trade sets a quantity target vs a carbon tax which puts a price on emissions.
The same debate is raging over whether to mandate a quantity of renewable energy or to guarantee pricing for renewable energy to encourage investment.
The new US bill is going for cap and trade and setting renewable targets, In Europe they have opted for “price” signals to aid the development of renewable energy. Utilities in Germany and other European countries, for example, encourage the development of expensive solar power by guaranteeing high payments to producers of renewable energy.
Price targets can provide certainty about how much money will be spent. They can also make a system easier to administer. But setting a price target carries the risk that the price will be wrong — too high or too low to achieve the objective — although it can in theory be adjusted over time.
Perhaps because Europeans grumble less about taxes, Europe has been more open to direct price management than the United States. To be sure, the European Union as a whole has implemented a quantity-based cap-and-trade policy to reduce greenhouse gas emissions; but a few northern European countries have also tried out a carbon tax.
If the EU manages to accommodate both schemes maybe having a mixture and building in some flexibility is the way to go.
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