Cap-and-Trade Approach Said to Be Powerful in Energy Legislation

In an op-ed published by the Boston Globe today, Harvard Kennedy School professor of business and government Robert Stavins and Richard Schmalensee, economics management professor at the Massachusetts Institute of Technology, wrote that opponents of cap and trade "should resist demonizing market-based approaches to environmental protection and reverting to pre-1980s thinking that saddled business and consumers with needless costs." Sometimes, they wrote, the approach had been effective, as with phasing out leaded gasoline and reducing emissions linked to acid rain.

Stavins and Schmalensee wrote: "Virtually all economists agree on a market-based approach to reduce carbon dioxide emissions. Some favor carbon taxes combined with revenue-neutral cuts in distortionary taxes, whereas others support cap-and-trade mechanisms -- or cap and dividend, with revenues from auctioned allowances refunded directly to citizens. Conventional approaches advanced as painless alternatives -- a plethora of standards, special-interest technology subsidies, and tax breaks -- won't do the job, and will be unnecessarily expensive. While we are struggling to revitalize the economy, we simply cannot afford to turn our backs on markets and impose unnecessary costs on businesses and consumers."