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in the US debate over climate change legislation, rather than a cap and trade approach.  That should tell us something about what Royal is worried about. The reason is that a tax on all carbon sources, rather than a regulated limit on total carbon emissions, allows much, if not most, of the burden of of restricting GHGs to be placed on consumers rather than on producers of GHG-laced energy sources.  Consumers must make lifestyle sacrifices while producers remain highly profitable.  The elasticities of demand and supply for energy allow production of GHG fuels to be greater and more profitable under a tax regime than under a cap regime.  That's likely where Royal is coming from, and that's why most economists on the left favor a cap system in the US rather than a tax system.

The EU, however, which already has a cap system, has been constrained by lack of infrastructure to measure emissions so cap regulation has proved difficult to implement there.  Rather than spend additional euros on increasing the environmental regulatory bureaucracy for information gathering, a tax allows a second-rate political solution. Taxes, however, place no limit on carbon emissions, and if the elasticity of demand for carbon energy is great enough, emissions can even increase under a tax regime, depending upon other developments in the economy.

by santiago on Thu Sep 3rd, 2009 at 05:38:42 PM EST
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