Colorado’s city of Boulder was the first municipality in the nation to levy a so-called carbon tax for reducing greenhouse gas emissions in an effort to address climate change. Now the rest of the nation needs to follow its example.
In the climate provisions of the White House’s fiscal year 2010 budget, the president specifies a cap and trade system as the best way to reduce greenhouse gas (GHG) emissions. Draft legislation in Congress, such as the Waxman-Markey Climate Change Bill, also includes cap and trade plans.
A cap and trade system requires the establishment of a complex trading scheme — one that is easy to manipulate. Let’s not forget how “effective” Wall Street can be at manipulating the market to its own advantage. And don’t expect Congress to pass up an opportunity for “free money” either. The Waxman-Markey Bill already has become chock-full of political pork. Billions of dollars in free allowances have been given away to favored industries even before the bill has been publicly debated.
Instead, we need a stable economic environment, one that encourages investment in new energy technologies and energy efficiency. Cap and trade, which is prone to volatile market activity and wild price swings, would leave us with long-term market instability, which discourages investment and retards economic growth.
Because a cap and trade system would need to be built from the ground up, it would actually delay reduction of GHG emissions. New markets and new regulators and a bureaucracy to support them would be required to launch a cap and trade system. The system would need to be robust enough to monitor the activities of tens of thousands of businesses and Wall Street traders.
We know the majority of economists agree with us that a carbon tax is far preferable. It is a simpler, more efficient, more effective way to reduce GHG emissions. A carbon tax is transparent to citizens and businesses, making it just about impossible to manipulate. Because a carbon tax is so straightforward, businesses can build their plans around it, and investors can trust its constancy. Most important, a national carbon tax can be instituted right now using existing U.S. tax infrastructure. With a national carbon tax, the business of reducing GHG emissions can begin immediately, enabling our nation to have a positive impact on climate change without delay.
A carbon tax provides businesses, industries and all of us a direct incentive to embrace energy efficiency and conservation, to invest in more energy-efficient technologies and to explore cleaner alternative fuels.
As debates about climate change rage in Washington, I remain optimistic that Colorado will shine like a beacon of common sense, illuminating the benefits of a carbon tax.
Fred Julander is president of Denver-based Julander Energy.