Thursday, October 18, 2007

McCain on Climate Change

John McCain appears confused about the relationship between carbon taxes and cap-and-trade systems to deal with global climate change:

Mr. McCain said in his speech on Saturday that he wanted to push for alternative fuels, but he implied that more needed to be done to protect the environment. One priority, he said, would be to establish “cap and trade,” a system in which corporations are essentially rewarded for deep cuts in harmful emissions. Mr. McCain has written a bill on that and forced two votes, losing both....

The senator opposes a measure that many environmentalists desire, a carbon tax, most likely as another gasoline tax. He told the warming and energy conference that he generally opposed new taxes but that he also believed that poor workers who tended to commute to work longer distances would be disproportionately affected.

Senatator McCain, it seems, has not been fully briefed on the economic impact of cap-and-trade. Like a carbon tax, a cap-and-trade system would put a price on carbon and raise the price of carbon-intensive products.

At least a carbon tax would raise some tax revenue, so other taxes could be cut to offset the distributional impact of the higher prices. A cap-and-trade system would not raise revenue to fund a compensating tax cut, unless the carbon allowances were auctioned, in which case the system would be effectively a carbon tax.

The bottom line: Those poor workers commuting to work are no better off under cap-and-trade than they are under the carbon tax.