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Climate Pricing 101
Alex Steffen, 23 Aug 07

Putting a price on carbon, most smart observers agree, is one of the best ways to leverage a transformation to an energy-efficient and clean-powered economy. But carbon pricing schemes are complicated, to put it mildly. Therefore, our friends over at Sightline have performed a real service by pulling together a Climate Pricing 101 primer.

If you've been wondering about the difference between a carbon tax, a "cap and trade" system and a "cap and auction" system, look no further. It's all broken down here in plain, clear words:

Cap & Auction Description: The government sets a firm limit on total CO2 emissions (the cap). Any major fossil fuel user (e.g., utilities and petroleum refiners or distributors) must purchase emissions rights from the government in regularly scheduled auctions.

Pros:

  • Real reductions: The cap helps guarantee specific emissions reductions.

  • Revenue source: Auction revenue can be used to ease burdens on poor and middle class, reduce compliance costs, or finance more rapid emissions reductions.

  • Easy industry bailout: Industries with unregulated competitors could be granted some credits for free; no need for complicated bailout.

  • Low-cost reductions: Industries with high emissions and low profits will typically be the low bidders for carbon credits. As a result, the cheapest and easiest reductions will be made first.
  • Since carbon restrictions in some form are almost sure to be part of our lives for the foreseeable future, this is pretty essential information.

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