In a speech in Washington, D.C., Exxon CEO Rex Tillerson argued that a carbon tax is preferable to a cap-and-trade system for controlling greenhouse gas emissions. As reported in the WSJ, Tillerson noted that a carbon tax would be a “more direct, a more transparent and a more effective approach” than cap-and-trade. “Mr. Tillerson said a cap-and-trade system would be costly, bureaucratic and create a ‘Wall Street of emissions brokers.'”
The Center for American Progress’ Daniel Weiss responded that Tillerson’s apparent endorsement of a carbon tax “could be a ploy because few observers believe such a tax is politically feasible in our Congress.” Yet none other than NASA’s James Hansen, who believes dramatic emission reductions that will actually reduce atmospheric concentrations of greenhouse gases, are necessary “to preserve nature and humanity,” argues that cap-and-trade will stimulate special-interest rent-seeking and create bureaucratic morass without having an appreciable impact on emissions and “will practically guarantee disastrous climate change.”
A carbon tax is difficult politically because no politician wants to be seen as calling for higher taxes. Yet a cap-and-trade system will only be effective to the extent that it replicates the effect of a tax on carbon-based energy sources, and a cap-and-trade system is (in the real world, as opposed to theoretical models) is likely to be far more costly and difficult to implement and far more prone to special-interest manipulation (as I argued here). Now that the likes of Tillerson and Hansen (and others) can agree that a tax is preferable — particularly if revenue neutral — perhaps it can become politically possible.