Are pigs flying yet?
Obama is right that if permits are auctioned, a cap-and-trade system has effects that are similar to a carbon tax. (Here is a previous post of mine on the topic; see also this post from a fellow econoblogger.)
Q: Do you believe that we need a carbon tax in addition to a cap-and-trade program?
A: I believe that, depending on how it is designed, a carbon tax accomplishes much of the same thing that a cap-and-trade program accomplishes. The danger in a cap-and-trade system is that the permits to emit greenhouse gases are given away for free as opposed to priced at auction. One of the mistakes the Europeans made in setting up a cap-and-trade system was to give too many of those permits away. So as I roll out my proposals for a cap-and-trade system, I will price permits so that it has much of the same effect as a carbon tax.
I have not liked Obama's previous economic ideas (see here and here), but if he follows through on what he suggests in this interview and proposes a cap-and-trade system with auctioned permits, I will be impressed.
Update: In related news, Congressman John Larson joins the club: He introduced a carbon tax bill last week. President Bush declines membership.