There is a question what carbon policy is most suited to the U.S. The question boils down to the best way to force GHG emitters to spend enough money on reduction of CO2 and other GHG. Several policies have been discussed or tried around the world:
Cap and Trade
Cap and trade is a popular yet problematic solution. Firstly, it hasn’t produced the expected significant change in places it has been tried (although it is too early to measure the effect). Second, it is simply a tax on the American people. Third, the process will be extremely political and given our system of government will be even less effective than Europe. Fourth, it may divert resources from where they can be more efficiently used to solve the problem. It may create a new bureaucracy that will misallocate the nation’s resources from solving the problem to workarounds (it did in Europe). It stands against the principle of using our energy policy as an economic competitive advantage. There is a real problem of assigning the true cost of carbon.
A tax that will put pressure on producers of carbon to move away from carbon. The tax should be on the source, based on its strategic value and not based just on net carbon output. For example, petroleum might have the highest initial tax while natural gas a lower. Bio-fuels may have no tax, although burning them produces lower carbon emissions. The disadvantage: it can all be rolled back on the consumer. There is no customer choice when it comes to electricity. Gasoline tax can slow the economy with no proven benefit.
The main carbon emitters are power plants, certain industries (like cement) and transportation. Solutions to the problems associated with the transportation sector will cause dramatic reduction in carbon emissions.
We suggest concentrating on the utilities. It is easier to regulate already regulated industries and it will probably produce the most focused results. We need to create a realistic carbon management schedule for the utilities sector (that will be also tied to energy conservation and efficiency). Focus on the main sources via regulatory means. Do not directly tax the American people and do not create a new inefficient bureaucracy. It will differentiate us from other countries and will eventually become a competitive advantage.