Cap and Trade is political bullshit. If you want to tax carbon emissions, tax the fuel coming out of the ground and let the drillers and diggers pass that on to whomever uses the fuel. It's the only way to be fair about it. Otherwise just accept that this is nothing more than a political game.
Emissions are approximately proportional to fuel use, so I don't see how a tax on fuel (which would be proportional to fuel use) would have any lesser or greater effect than a credit system on emissions (assuming credits needed are proportional to emissions).
Under the proposal, nobody pays anything if they maintain their current emissions. But if a small airline grows and takes market share from a big one, the small one will have to buy credits and the big one will be able to sell credits. The little guy in effect pays the big guy for taking his market share.
If you tax the fuel directly, everyone gets a cost increase right away which they should pass on to their customers. But it doesn't have adverse effects on the free market like the credit system does. You fly more planes, you'll pay more taxes but in proportion to your new revenue so it doesn't really matter.
(And yes, folks, the environmental damage from any one use is bounded; it can't possibly cost more than the cost to undo that damage. If your model of the environmental damage implies it is infinity, it's just wrong, and it's driving bad policy.)
Isn't that what cap and trade is? What's the distinction here?
The problem with taxing the oil coming out of the ground is the incredibly complex nature of an unstable global market that is managed largely by a small number of players artificially controlling the price and a whole futures market trying to hedge against that roller coaster. It's also a market that wars are literally fought over. Finally, it's political suicide since it will impact consumers directly in the amount it costs them to fill their cars instead of indirectly, which they are less likely to blame on oil taxes.
Just put a fixed tax per barrel, or per carbon atom, or whatever. The tax shouldn't depend on the price paid for the oil. Just put $1 for every barrel pumped in the US, and every barrel imported and presto - $19M per day of tax revenue ($7B per year) without a major impact to the consumer, and without creating that new market for credits and the associated politics. Do the equivalent for coal and gas too - you know all the carbon sources. People act like passing on a price increase is going to hurt their business, but when everyone has to do it that's not true.
1. Not all oil that comes into the US is in the form of barrels of crude oil. It may come in refined (a small amount, I assume, considering the oversupply of refineries in the US). But more likely it comes in as part of an imported product.
2. Which leads to the problem we already have: if oil is expensive in the US, that further incentivizes moving to where it is not expensive. Instead of buying your expensive fertilizers to grow food in the US, why not grow more crops in Mexico or Canada and import them?
3. Or perhaps oil is a part of the manufacturing process (i.e. plastics). Now it's all of a sudden even cheaper to manufacture outside of the US. Of course, you also have the complicated problem of recycled materials as well.
4. Or it's part of the shipping process. I'm not sure how you even tax this.
All these problems need to be managed. We would need to address figuring out how much oil goes into any one thing we consume. We need to address free trade agreements (can we charge duty on a product depending on how much oil was used to make it, ship it or grow it?). We would need to provide incentives to recycling, manufacturing, organic agriculture, etc. etc.
It's not that these aren't problems we should try to solve, it's just that "presto, 7B of income a year" is not what will happen.
Doesn't that create the wrong incentives? Digging up carbon and using it to make stuff that is kept around indefinitely / recycled into more stuff / buried when life-expired should be fine - it's putting it into the atmosphere that we want to discourage.
(Also there should be a positive incentive for taking carbon out of the atmosphere permanently).
its one way that countries try to avoid fair trade as it gets harder to follow the money. it also lets politicians unfairly subsidize some businesses over others because of whom runs them, not what benefit they provide.
so tax it once and get it done with
The generally accepted solution is a carbon tax that increases over time. The tax can even be revenue neutral with everyone getting an equal share of a year end rebate.