Lois Kazakoff: Time for a carbon tax?

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With the passage of Obama’s much-touted climate legislation in the House Friday, the action moves to the Senate where the 1,200-page bill surely will undergo some pruning.

There much of the debate will center on how to reduce carbon pollution, and the prevailing sentiment is to use trade, not taxes.

But a new report suggests that trade is not the answer: our trading system has largely collapsed with the meltdown of Wall Street and trading can lead to price volatility. A tax, the report’s author, Elaine C. Kamarck, co-founder of the U.S. Climate Task Force, argues, gives consumers certainty about energy prices.

This thinking appeals to a large swath of the environmental community which sees a cap’n'trade system simply as a license to pollute. And, as recent reports from Europe show, that is correct. Cap’n'trade creates an incentive to trade pollution credits but not to reduce pollution. And that is, after all, the point.

Kamarck’s group does understand the need for an incentive for Americans to address climate change, and offers this sweetener: the federal government should cut payroll taxes if Americans are taxed more for gasoline and electricty (she estimates about $1,500 per year per family). The carbon tax revenues would then be credited to the Social Security fund.

Adding a tax and taking from an already underfunded account sure seems like a showstopper to me. Yet I agree that the trade approach seems ineffective to slow global warming — something we know we must do.

Kamarck is undaunted. “We’re just trying to put a different idea on the table.” she said.