Carbon Tax Over Cap And Trade Essay

The Organization for Economic Cooperation and Development (OECD) has described the innovation process as a “back-and-forth start-and-stop model” that is “hectic, unscripted and collaborative” (OECD, 2010). Innovation does not always coincide with research and development, except in governmental situations. Looking at the political reality in the U.S. and the likelihood that there is no support for a federal cap and trade system, a carbon tax might be a possible solution which could reduce the budget deficit (McKibbin et al., 2012). One reason to prefer a carbon tax over cap and trade is to follow what was done in the European Union which passed its cap and trade system. This lead to free allocations, which essentially meant gains for those receiving windfalls, while a carbon tax avoids uncertainty. In contrast, “a carbon tax fixes the economic cost which can be changed if the original tax rate does not lead to the right level of CO2 mitigation” (Nordhaus,

Economists and environmental studies scholars have found that a carbon tax has the capacity to incentivize innovation in the U.S. which will also impact economies across the globe. If the U.S. were able to more adequately open trade in green technologies, studies show that the economies of all nations involved would be positively affected. Those who oppose the carbon tax point to the negative impact that it would have on manufacturing. They argue that prices would rise for natural gas, electricity, and other energy commodities. Thus, they say, the economic benefits would be outweighed by the subsequent costs to the periphery (NAM, 2014). However where most economists and environmental studies scholars agree is that since many of the green technologies are produced across the globe, it is likely that any existing trade barriers to green technologies will be dismantled and this will reduce the costs of these goods and