Does Wall Street prefer cap-and-trade?
Interesting observation about Wall Street. Under a cap-and-trade system, someone has to set up the market to arrange the trades, and those market makers could potentially be a political interest group. Of course, this does not make cap-and-trade a better policy--in fact, to the extent that resources are used up on the market makers, that is a downside of cap-and-trade. But perhaps it may help explain some of the politics.
Fellow power company CEOs "would probably cringe to hear me say it," Williamson said, but he believes a federal tax on carbon dioxide emissions would be more fair than a cap-and-trade system. The latter allows companies to buy and sell the right to emit CO2.
A tax is "the easiest method, the fastest and the most equitable," Williamson said, because cap and trade systems tend to be more costly for companies to manage and create regional imbalances that would likely lead to federal lawsuits. "I've made the joke before that Wall Street would likely lose its interest in the environment if there wasn't money to be made from a trading opportunity."
The interest group that benefits most from cap-and-trade compared to the tax are the energy companies. It the permits are handed out, rather than auctioned, the companies in effect get the revenue that the government could otherwise use to cut distortionary taxes, such as income taxes. That is why it is surprising to see Williamson being so forthright here. You would think that his shareholders would prefer a less honest CEO.