Carbon tax deserves serious look

The evidence for global warming is “unequivocal,” according to the United Nation’s latest report on climate change, and that sense of urgency has finally reached the U.S. Congress.

America’s Climate Security Act would implement a cap-and-trade scheme, putting a limit on carbon emissions and either giving away or selling permits to pollute that could be traded between companies.

Although it’s likely the bill won’t pass the first time around, we’re glad to see Congress finally doing something to seriously address the problems of climate change and carbon emissions. It’s just a shame that it picked the second-best option.

While politically unpopular, levying a carbon tax is the most economically efficient way to combat climate change.

The main problem with a cap-and-trade system revolves around setting the quantity of permits issues and the ensuing effects on their price.

Ideally, the price would be such that the firms that find it most costly to reduce their emissions will simply buy permits from those that can cut emissions with the least expense.

But if the government allots too many permits, the price will plummet and firms will buy the low-priced permits instead of cutting emissions.

On the other hand, issuing too few permits will lead to higher prices, which will cause firms’ costs to increase exponentially and stifle economic growth.

If politicians knew precisely what quantity of permits would elicit that ideal price, then the system would work perfectly – but they don’t.

Directly targeting the price of emissions with a carbon tax reduces that inefficiency.

If politicians misjudge the price of the tax and emissions don’t fall to the appropriate level, it’s economically much less costly during the time that it takes to change the price of the tax than the time to recall or issue more permits.

The other major advantage to a carbon tax, besides improving market efficiency, is that the revenue from the tax goes straight into government coffers.

That money could be used to reduce taxes in other areas to lessen the impact on both the consumers and industry, who will share the burden of the tax through higher costs and higher prices.

A carbon tax is also superior to subsidizing alternative energy industries, as it provides a stronger incentive to cut emissions while still providing a strong financial reason to develop other energy sources.

Unfortunately, a carbon tax has little support outside of economists, though a number of presidential candidates have endorsed the idea of a cap-and-trade system.

Therefore, we need a new moniker for a carbon tax because, to quote J.K. Rowling, “fear of a name increases fear of the thing itself.”

It should be something like a pun, so that it doesn’t sound like a tax but is still accurate, such as: “America’s duty to preserve the quality of the world for its children.”

The Daily Tar Heel is the student newspaper at the University of North Carolina at Chapel Hill.