Message below on July 27 is the 2nd in an exchange between EDF [Environmental Defense Fund] and me. Others are posted on July 12 and July 29. The writer is a Climate Policy Analyst for EDF.
Hello Mr. Allen,
EDF supports a cap and trade policy because we believe that a carbon cap is the best path to climate security: it guarantees reductions in global warming pollution at the lowest possible cost. Cap and trade puts a price on carbon (the critical step in terms of economic incentives, as you mentioned) while also putting a limit on pollution (the crucial piece for the environment). A tax or fee on carbon emissions might make pollution cost more, but can’t guarantee that emissions will go down because setting the fee at the right level is a guessing game (we do not know how high it has to be to discourage enough pollution to stabilize the climate).
We agree that simplicity is needed in whatever approach we take, though the history of tax legislation in this country indicates that instituting a tax/fee will not necessarily be any simpler. In the context of cap and trade, we have been advocates of a simpler approach to distributing allowances that emphasizes protecting consumers, largely by returning a significant portion of the value back to consumers through a ‘dividend’ and other mechanisms. So a dividend is not mutually exclusive from cap and trade (recent legislative proposals, like the American Power Act (APA), have included some form of dividend that will give money directly to taxpayers). Other revenue generated from the cap and trade program in APA funds policies that protect consumers from price increases in their electric bills and help us transition to clean energy through investments in efficiency and low-carbon technologies. A carbon cap will spur innovation and investment in new technologies and will let the market pick winners and losers. The benefit of the ‘trade’ part of cap and trade is that it grants businesses flexibility to meet their emissions reduction requirements either by purchasing allowances from others who can reduce emissions more cheaply or by purchasing emission “offsets.” Offsets are a valuable emissions reduction tool that can help reduce deforestation and incentivize best practices in forestry and agriculture.
I hope this background on EDF’s position is helpful. Please feel free to email me any other questions you may have!
Best regards,
Mandy Warner