LASER TALK: Why We Prefer a Fee to Cap-and-Trade

Although cap-and-trade is our second favorite solution, we prefer a straightforward fee.

A carbon fee sends a predictable price signal that is not subject to market fluctuations and which enables businesses and consumers to plan their energy investments. Whereas cap and trade caps the emissions the price fluctuates.

Our biggest concerns are international coordination and no actual reduction in emissions and just offsetting emissions. The problem of climate change is worldwide and an approach is needed that can accommodate the needs of emerging economies. A fee more easily lends itself to border adjustments between countries with different or no carbon fees, enabling agreements that can be harmonized worldwide.

The European Union, which implemented a cap-and-trade system for carbon, has been fraught with fraud . This system places a price on permits so low that it has no impact on emissions. In the absence of set floor price for carbon, the variable carbon price with cap and trade systems will make harmonization globally via border tax adjustments clearly next to impossible.

Undoubtedly, the biggest problem is offsets, which are easy to manipulate and extremely difficult to measure and verify. Trying to make compliance inexpensive via offsets is the antithesis of what needs to happen.





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