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The two major proposals for reducing carbon emissions are a cap-and-trade system and a carbon tax. The U.S. House of Representatives voted in favor of the former on June 26, 2009. However, many economists regard a carbon tax as the better approach, and in our June Economic Bulletin, "Climate Science, Economics, and Policy," excerpted below, economist David Henderson argues in favor of such a tax:
"Given the combination of continuing uncertainties, possible risks, past history, and the present situation, I am personally inclined to favor the widespread introduction of a moderate carbon tax (or carbon charge, if you prefer), provided -- and these are strong conditions -- it can be made to work and is kept revenue-neutral. As I see it, the case for such a tax (or charge) rests on a number of related grounds. First, as things are, and unlike the strong [global warming] dissenters, I give some weight to the precautionary case for action to curb emissions. Second, and in contrast to other forms of action, a carbon tax is transparent. Third, there is something to be said for a tax that (as it appears) a significant number of people would actually view with favor. Fourth, a uniform pricing instrument minimizes the cost of any reduction in emissions. Last and not least, its adoption might serve to undermine the rationale for the various costly and intrusive forms of intervention -- subsidies, tax concessions, targets, prohibitions and regulations - that many governments have already introduced and are keen on taking further. Given a tax rate that was judged adequate to the situation, people and enterprises could be left to make their own decisions, without undue prescriptive interference." Professor Henderson is a former head of the economics and statistics department of the Organization for Economic Cooperation and Development and is currently a visiting professor at the Westminster Business School in London. In this article and elsewhere, he asserts that the consensus view on climate change has been overstated. Much of his recent work describes the flawed advisory and political processes that have resulted in a bias toward an "over-presumptive" consensus and left dissenters to be unfairly dismissed as deniers. The full article, "Climate Science, Economics, and Policy," is available for free to AIER subscribers or $2 for non-members.
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