By Timothy Gardner
Climate taxes, not cap and trade markets alone, will lead to the vast technological changes the world's energy system needs to fight global warming, a top U.S. economist said on Thursday.
Cap and trade has emerged as the dominant attempt to slow global warming. Global deals in permits to emit greenhouse gas emissions have hit nearly $65 billion a year. The European Union, under the Kyoto Protocol, has embraced cap and trade since 2005 and voluntary markets have developed in the United States, the developed world's top carbon polluter.
But a straight carbon tax on energy production – at an oil wellhead or refinery for instance – would be simpler and cheaper than putting a cap on tens of thousands of polluters, Jeffrey Sachs, a special advisor to the U.N. secretary general and director of the Earth Institute at Columbia University told a panel on Thursday.
As the world prepares to form a successor agreement to the Kyoto Protocol by the end of next year, focus is sharpening on how well cap and trade markets are fighting emissions.
Carbon taxes would quickly cut emissions across all sectors of the economy, including vehicles and manufacturing, said Sachs. It could also be more efficient than spreading the trade of permits across the financial system.
"Having a lot of people engineer financial instruments for carbon when there are much more direct ways to do this strikes me as not really a great investment," Sachs said.