The inimitable Ben Stein writes about why cap and trade is a bad idea:
Two main ways to address the issue are under discussion. One would involve a nationwide system of credits for carbon burning, with a total cap. The credits would be traded in national and maybe world markets. Entities that emit more carbon gases would have to pay more to buy these credits, and those who saved carbon would pay less and be able to sell credits to heavier users.
The other idea is a direct tax on carbon emissions of a stable amount. The proceeds might be refunded in whole or in part to energy producers to help with other goals, such as producing cleaner fuels.
Both ideas have merit, but there is a tricky little history to “cap and trade,” which seems to be President Obama’s favored approach. Because the credits would be traded on an exchange, or somewhere else, their prices would fluctuate. They could even fluctuate wildly, as prices of traded items often do. (See the stock, bond and commodity markets if you’re looking for examples.)
Of course, the new system would be a great benefit to the people who traded the credits. But how about the rest of us? Haven’t we just had a big lesson in what happens when we put traders ahead of producers and consumers? Have we forgotten that lesson already?
The Stein article brings up a broader point of taxation vs. the free market in general. Should the government avoid creating new markets that are extremely vulnerable to speculation and manipulation? Or is that kind of market-creating activity crucial to creating the bubbles that keep the economy afloat (between major crashes)?