Thursday, November 01, 2007

Is cap-and-trade a tax increase?

I once dubbed this the fundamental theorem of carbon taxation:

Cap-and-trade = Carbon tax + Corporate welfare.

The CBO appears to agree. In new testimony on policies to reduce carbon emissions, CBO director Peter Orszag says:

The budgetary treatment of a federal cap-and-trade system for CO2 emissions is an important topic that has received relatively little attention. If the federal government sold emission allowances, the proceeds would clearly be scored as federal receipts. The appropriate treatment of allowances issued at no charge is less clear. There is a solid case to be made that even allowances that were given away by the government should be reflected in the budgetary scoring process—specifically, that the value of any allowances initially distributed at no cost to the recipients should be scored as both revenues and outlays, with no net effect on the budget deficit.