Argument: A carbon tax passes costs onto consumers

Issue Report: Cap-and-trade versus carbon tax


Richard Cowart. “Addressing Leakage in a Cap-and-Trade System: Treating Imports as Sources”. April 2006: “In a supply-side cap-and-trade system with a limited geographic scope and the potential for power supply imports (i.e., a system like RGGI), generators outside the capped region could export power to load-serving entities within the region without being covered by the regional carbon cap. This is called “leakage” (this memo also uses the term, “carbon export” to recognize that power imports per se are not a problem – it is the carbon associated with the generation behind the imports that concerns policy-makers.) Leakage raises three problems: (a) uncapped imports will have a competitive advantage compared with capped, in-region generation; (b) imports could undermine the effectiveness of the program with incremental emissions that are not counted against the region’s emissions limits even though they are associated with power consumed by capped-region customers; and (c) without the discipline that comes from capping imports in some way, outside generation could displace energy efficiency and incremental, cleaner generation within the capped region.”