Some see three-figure, and-rising oil prices as a way of limiting greenhouse
emissions. No doubt conservation will increase. However, the more I think about
it, the more I realize that all that high prices can achieve can be done much
better with sensible carbon taxes. As a result, governments ought to accelerate
the required transformation - or at least stop delaying it.
Effective climate-change policy requires raising the market price of carbon emissions, and there are two alternative approaches for doing so. The first is a price-type approach, such as carbon taxes, and the second is a quantitative approach, such as the cap-and-trade systems advocated by the Kyoto Protocol and other policy proposals.
However, quantitative limits produce high volatility in the price of carbon as has already been seen in the EU’s cap-and-trade system for CO2. Moreover, a major risk about cap-and-trade policies is whether they would become just plain cap-without-trade, due to corruption and/or special interests.
On the other hand, economic models conclude that a straight carbon tax would be a more efficient way to provide the same incentives as a cap-and-trade system. To that effect, we must educate the public about the benefits of a price-based approach. Let's face it, tax is a four-letter word, mistrusted by the public and policy makers in the US, and is unfamiliar territory on global treaties. Yet, taxes on bad behaviors, like CO2 emissions, are good because they remove implicit subsidies on harmful or wasteful activities.
Perhaps the politically feasible solution would be a compromise, somewhere between the two, let's call it cap-and-tax. Regardless, the risks of inaction far outweigh those of imperfect action, as long as it is gradual.
The U.S. Senate is debating the Boxer-Lieberman-Warner bill this week, which at its core would create a cap and trade system of CO2 emissions between firms. If the Boxer-Lieberman-Warner bill becomes law and is successful, it will grow industries that compete with oil.
The pain of a prolonged oil crisis will catalyze government and business into historic change. The 1970's showed how supply and demand, although inelastic in the short term, eventually lead to significant conservation. After the second shock, oil was out from power generation. The third shock will finish the job and will free transportation from oil.
Please don’t just think about it, get involved, act your conscience.
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