Beware of the Dogmatist: A Consensus Perspective on the Tax-Versus-Cap Debate

Abstract

The ongoing, unresolved debate between carbon tax advocates and proponents of caps and standards could be resolved if policy makers and economists recognized several basic and simple principles of climate policy: First, carbon taxes need not impose higher regulatory costs than caps and standards. Second, the "environmental certainty" of caps and standards is a dubious advantage if emissions are not actually capped at a sustainable level. Third, taxes and caps are not mutually exclusive options; a price floor in the context of cap-and-trade would combine advantages of both approaches.

Keywords: Climate Policy, Carbon Tax, Cap-and-Trade

JEL Classification: K23, K32, Q28