A number of scholars, from the left and the right have floated versions of a carbon tax. Henry Paulson has also weighed in, favoring a tax.
In theory, a uniform comprehensive carbon tax enforced among all major global emitters might have great advantages. Such a tax, if linked to a stringent accounting system, could be more transparent than any other approach to greenhouse gas control. In contrast to command-and-control schemes, a tax would target abatement resources to where they would be most cost-effective. A tax, unlike the 2009 cap-and-trade bill, would make it harder for proponents to falsely promise both low abatement costs and large emission cuts. Logically, a tax could replace the confused jumble of wasteful special interest laws such as CAFE standards, Renewable Fuels Standards, and Renewable Portfolio Standards.
Yet there are a number of very strong objections to a U.S. carbon tax. Even a very high price on carbon emissions would have almost no impact on global climate. Credible theories of geopolitics imply that U.S. action on abatement will have little or no impact on the policies of Beijing, Moscow, and New Delhi. While a uniform tax would be more efficient, history suggests that strong interest groups will be able to use a tax to create loopholes for themselves and handicaps for their competitors. To the extent that they do, cost-effectiveness will suffer. A tax is also more likely to lead to fuel switching than to technological revolutions. Then too, it is highly unlikely that it will be possible to sweep away the current jumble of command-and-control measures all purporting to internalize the damage from climate change. If so, identifying the right tax rate would become quite a challenge.
Finally, many observers doubt the political realism of a U.S. carbon tax. Environmental groups fear that, were the costs of abatement more transparent, the public world balk at paying them. Many Republicans reject all new taxes as offering unwanted alternative to cutting wasteful government spending.
“Would a carbon tax effectively combat climate change?”