Peter Dorman of EconoSpeak proposes an interesting alternative to the traditional carbon taxing plans we’re used to hearing.  He instead prefers a permit system:

There are two reasons why permits rule. (1) There is great uncertainty about the future relationship between carbon prices and pollution levels (long run elasticity of demand for fossil fuels). Taxes place the burden of this uncertainty on the environment (the amount of pollution); saleable permits place it on costs faced by energy users (fossil fuel prices). (2) Politically, if we go the tax route, we end up in a discussion about taxes. That’s why skeptics thought Dingell might be boring from within. If we center the policy on permits the debate is over how much greenhouse gas emissions we are willing to tolerate. That’s the discourse we need.

Jan Mazurek of the Progressive Policy Institute, unsurprisingly, proposes a third way.  Her suggestion is that we follow a model already adopted in California and the EU, and instead focus on “tailpipe standards”:

Adopting “tailpipe standards” would change the equation for American car companies. Market forces would create incentives for them to develop fuel sipping cars that run on gasoline alternatives like advanced biofuels or electricity. Moreover, a tailpipe standard system could be integrated into a national cap-and-trade system for carbon dioxide and other greenhouse gases that cause climate change. The European Union has already adopted such a system.

As with national cap-and-trade proposals that would cover energy producers, factories, and other big emitters, a tailpipe trading system would give automakers a profit motive to produce cars and trucks that keep CO₂ emissions under set limits. Companies with fleets that miss the mark could buy credits from other sources (any company covered in the trading system, not just other automakers), or pay into a fund that could be used to further spur innovation and jobs that breakthroughs would bring. Already, California carmaker Tesla motors is building a new assembly plant in New Mexico for its zero emissions electric sports sedan.

Emphasis is my own.  I’m inclined to agree with Dorman here.  As a political issue, talking about taxing carbon at the production level is a loser.  You’ll undoubtedly get bogged down in silly arguments about stifling the mighty American machine, and Horatio Alger, and so on.  Dorman is also correct about placing this onus on the environment, rather than the producers themselves.  Even Ms. Mazurek’s suggestion rests on “incentivizing” the polluting industries to minimize the burden they place on the environment, rather than making them evolve and develop alternative technologies.

I’m also skeptical of these taxation plans, or as Mazurek suggests, “fund pooling” plans that still rest upon bad behavior to continue.  It’s reminiscent of the SCHIP expansion, which would rely heavily on taxing tobacco to finance its coffers.  Meanwhile, the government is spending tax dollars to reduce smoking through education campaigns, thus undermining their own good programs. 

“Big Solar” and wind companies are making strides every year in providing for the energy needs of a vibrant, industrial country.  Rather than penalizing companies that pass some arbitrary threshold of tolerable pollution, why not incentivize the industry to evolve?  The first step would be for government to start investing in and subsidizing alternative energy, and to secondly reduce the support given to industries that continue to produce antiquated and environmentally unfriendly products.

(Cross posted at my blog)