Wednesday, 27 May 2009

Cap & trade: Carbon tax or wealth transfer?

Excerpt from this article by Sean Casten:
"It’s an article of faith that cap-and-trade will raise our energy costs, but it’s not necessarily true.

The ubiquity of this faith makes clear that the Smart People who write, talk, and vote about CO2 policy don’t really understand the issues. A quick discussion, and then some math to clarify.

There are two core problems with the theory that carbon pricing schemes will raise energy costs:
  1. We habitually confuse sector-specific wealth transfers with economy-wide pain; the two are not necessarily the same.
  2. Rather than admit our failure to imagine how the world would adapt to carbon pricing, we tend to assume stasis, thereby overstating the costs of compliance. "

Tim Flannery makes a similar observation in The weather makers. The rest of this article discusses both these points is well worth reading.

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