Tax v Cap and Trade, Carbon Offsets

The debate over the implementation of greenhouse gas (GHG) mitigating policy is fascinating to me (should it be a carbon tax, or a cap and trade system?). Greg Mankiw says, in the Pigouvian tradition, that it should be a dedicated tax. In a tax system, the theory is that the revenue could be redirected to the lower income Americans who would be most adversely affected by the rise in prices on a variety of goods. The same could be true of a Cap and Trade system, though.

Nobel Laureate Gary Becker and Richard Posner (a renaissance man) have an interesting discussion (here and here) about problems with the market for carbon offsets. They come down well on the side of a Cap and Trade system, but they don't discuss it in the specific context of Tax v C&T. Nonetheless, it's worth a read, although both posts are rather long. I understand the concern both have about crowd out in efforts undertaken by carbon offset organizations (such as replanting forests), but I wonder if they aren't overstating this potential problem.

In at least two parts of the US, states are taking the lead on controlling GHG emissions absent federal leadership. RGGI (Regional Greenhouse Gas Initiative) is a collection of northeast states making a regional push because Congress has failed to take the lead (the participants are: CT, DE, ME, NH, NJ, NY, VT, and MD. In addition, DC, MA, PA, RI, the Eastern Canadian Provinces, and New Brunswick are observers in the process.).

In the Northwest, three governors (Arnold Schwarzenegger (R-CA), Brian Schweitzer (D-MT), and Jon Huntsman (R-UT), are part of another such organization. Check out this recent commercial they put out
calling on Congress to step up and make this a national priority. (I saw the video on the Gristmill)

Interestingly (though not surprisingly), one of the carbon offset companies Posner and Becker mention as being a potential liability for the environmental movement advertises heavily on the Grist website.