It's been a while since I've posted, but I just had to put up this article by Michael Boskin at Stanford. Here's the punchline for all the environmental economists out there:
As for energy policy, the president's cap-and-trade plan for CO2 would ensnare a vast network of covered sources, opening up countless opportunities for political manipulation, bureaucracy, or worse. It would likely exacerbate volatility in energy prices, as permit prices soar in booms and collapse in busts. The European emissions trading system has been a dismal failure. A direct, transparent carbon tax would be far better.
Moreover, the president's energy proposals radically underestimate the time frame for bringing alternatives plausibly to scale. His own Energy Department estimates we will need a lot more oil and gas in the meantime, necessitating $11 trillion in capital investment to avoid permanently higher prices.
So there would be both a price (cap and trade) and a subsidy (oil/gas "investment") on carbon? This is a serious mixed signal. I agree that the cap and trade system will likely be subject to political abuse and a carbon tax would be much more effective. If carbon offsets are allowed in this system (which I'm sure many lobbyists will support), then the system won't stand a chance at being effective in reducing polution, just ask Europe.
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