One of the big issues facing governments is whether to proceed with carbon trading or introduce a carbon tax. A carbon tax is better because it's more efficient, transparent and simple. Cap-and-trade schemes, on the other hand, can allow governments to pay off politically powerful polluters, such as the coal industry, by getting them onside by giving them permits to pollute. Cap-and-trade schemes can also create opportunities for cheating. Besides, there is no guarantee that a carbon trading scheme would result in lower emissions. Think of it as a matter of supply and demand. If people reduce their spending on energy, if they drive less or use less electricity, that means the price of permits will go down. That gives companies the chance to buy permits to pollute at a cheaper price.

Blogger Andrew Sullivan concurs, arguing that a carbon tax would work better and would do less damage to environmentalism.

That's what drew my attention to the arguments of University of Colorado law professor Michael Waggoner . In recent paper How and Why to Tax Carbon he argues that a carbon tax would create a more efficient and equitable means of raising revenue than taxing income, consumption, or other typical bases for taxation. He says it should start low so as not to damage the economy, and that other taxes would have to fall to keep it revenue neutral. And because it is regressive, he says, there needs to be some sort of rebate for low income earners.

But he warns that a carbon tax might only be one of many taxes. The search for alternative fuels could create other problems. For example, the push for biofuels competes with people's need for food which would raise the price of food. Similarly, hydroelectric power normally requires damming rivers and those dams and reservoirs might endanger wildlife and might be vulnerable to catastrophic failure, unleashing devastating floods on those downstream. Indeed, this risk might be increased by terrorists. Therefore, there might be a need for other taxes.

"It may be necessary to impose some tax or regulation on energy-generating technologies that compete with carbon in order to reduce the risk of serious problems in other areas caused by the drop in carbon use,'' Waggoner writes. "The time to examine these possibilities is before the carbon tax is enacted, not
after the tax has been implemented and caused harmful side effects."

The chances of Congress introducing a carbon tax are next to zero. Americans seem to have a thing about taxes. On other hand, Waggoner's arguments give food for thought.