Dean Baker is a Dweeb!

Dean Baker has again shown his lack of understanding inTell McCain: Cap and Trade Is a Carbon Tax.

The NYT had an article today on the Republican candidates positions on global warming. At one point it reports that Senator McCain has supported a cap and trade system, but opposes a carbon tax. According to the article, Mr. McCain said that he opposed a carbon tax because he "opposed new taxes but that he also believed that poor workers who tended to commute to work longer distances would be disproportionately affected."

OK, seems reasonable to me.

A cap and trade system would create a certain number of tradable carbon emission permits which can be auctioned off or distributed through some other mechanism. This would lead a price to associated with carbon emissions just as a tax would. A poor person commuting to work would pay more for their gas because the oil carbon had to buy carbon permits just the same as if they had to pay a carbon tax. From the standpoint of commuters and the economy there is no obvious difference between the impact of a cap and trade system and carbon taxes, if they are set at a level where they bring the same reduction in emissions.

So, one key here is that the method of distribution. Many C&T schemes give away the credits as the grandfathered polluters get the credits since that is the status quo and not distorting the market on the first round. But as he defines the "tax" it is simply a transfer from least efficient to most efficient polluters which by McCains standard is revenue neutral with regard to Federal Taxes. The poor person commuting to work even if the cap and trade filtered down to his level on commuting allows him to choose more efficient suppliers than less. Any way you slice it the more efficient polluters would be favored over the less. Most carbon taxes translate to gas prices and as such his commute would be taxed directly unless he could find alternatives.

I often wonder why people devise plans to tax the wrong actions. It is not the gas producers that are emitting the carbon but it is the consumer in this case. Now for electricity generation then yes the power companies are the emitters. The question is to who is burning the hydrocarbons?

The article should have noted this point and informed readers that Mr. McCain either does not understand his own proposal or is not being honest with voters.

Seems McCain was honest with voters. Of course does Baker expect politicians to be as versed in all aspects of every policy? I mean it seems that Baker has taken some short cuts here also. In the comments section he did state:

You charge the cap and trade the oil companies that sell the gas.
...
Barkley,
i don't have any objection to cap and trade, as long as most of the permits are auctioned off. I just think it's ridiculous for anyone to say that they would oppose a carbon tax, but they support cap and trade. I understand that McCain is doing this to please his anti-tax base, but the media are not obligated to help him in this effort at deception.

So now he tells us that cap and trade is to sell/auction off the permits which he did not start with. And do you think the reporters would have gotten the difference if McCain had talked about these points? I mean Dean Baker should know that the Press is not very savvy with respect to economic issues.

The only distortion I see here is from Baker. McCain is correct that the Cap and Trade could be revenue neutral and that and "tax" that Baker has imagined is just a transfer from less efficient to more polluters.

Let me end with one comment on Dean's Blog that explains the issues pretty well:

Dean - you misunderstand the carbon debate.

Carbon will be regulated. The cost of regulation (incl. diminished emissions) will be carried by consumers. The flavor of regulation - straight tax or cap & trade - doesn't matter from the consumer's perspective.

However, the flavor of regulation (tax v. cap™) will have a tremendous impact on business and industry. Long story short: a straight carbon tax will handicap many business and industrial activities to the point of failure, but a cap & trade framework is far more flexible (allowing business and industry to plan, adjust and eventually comply with lower emissions and higher costs).

Dean B. is correct that carbon regulation has an absolute and invariable cost to consumers. The debate/question is whether the type of regulation imposed will allow business/industry some control/flexibility on the road to compliance. Many (like McCain) believe a straight tax is far too rigid and will kill many businesses.