Putting a Price on Carbon

Abstract

This Comment analyzes the characterization of both pollution taxes and so-called cap-and-trade programs addressing greenhouse gas emissions as policies that “put a price on carbon,” a characterization that has come to dominate both policy discussion and much modern scholarship on environmental instrument choice. It shows that the rationale for characterizing cap-and-trade — a quantitative rather than a pricing mechanism — as putting a price on carbon suggests that analysts should likewise treat traditional regulation as a mechanism putting a price on carbon. Treating “market-based mechanisms” as uniquely putting a price on carbon reflects and perpetuates a tendency to see markets and government as antonyms, with markets operating through price and governments operating through coercion, even though markets and governments are intimately intertwined and use a variety of tools. The literature also tends to associate efficiency, effectiveness, innovation, and autonomy with price incentives. This Comment shows that an informed second-generation debate about instrument design and instrument choice should focus on understanding prices’ limits as a coordinating tool, including appreciation of potential conflicts among the values price is thought to serve.