Why the answer is a carbon tax and not carbon credits

Back a decade we here at the ASI were mulling through the implications of the Stern Review and associated work. We still differ over the strength of the evidence stating that disaster is imminent. But our views on how to deal with it all assuming the evidence is true have converged. Some of us were in favour of carbon permits, trade in them across countries and industries, for such markets would be a most efficient manner of gaining the cheapest reductions in emissions quickly. Others of us preferred a carbon tax. Essentially on the grounds that while in theory less efficient the intervention of the necessary bureaucracy would make the cap and trade systems less efficient after all.

Here we show that all projects abating HFC-23 and SF6 under the Kyoto Protocol’s Joint Implementation mechanism in Russia increased waste gas generation to unprecedented levels once they could generate credits from producing more waste gas. Our results suggest that perverse incentives can substantially undermine the environmental integrity of project-based mechanisms and that adequate regulatory oversight is crucial. Our findings are critical for mechanisms in both national jurisdictions and under international agreements.

So we are, assuming the evidence insisting upon action is robust, rather of the view that the tax route is better.