In a new report prepared by the think tank, Committee for Economic Development of Australia (CEDA), the former Clinton administration figure argues "carbon taxes would be a more environmentally effective and economically efficient way to address climate change than a cap-and-trade system".
Sharpiro, one of nine economists and climate change experts who wrote a paper in the report Climate Change: Getting it Right, argues the distinction between the two systems is that cap-and-trade only controls the quantity of emissions, while carbon taxes directly controls the price.
The result is that cap-and-trade can produce a designated quantity of emissions but with much greater potential volatility in energy prices. Carbon taxes, on the other hand, will produce more certain prices for energy and energy intensive goods, but greater uncertainty about the quantity of emissions.
The price of permits under a carbon trading scheme will rise and fall when emissions fluctuate, destabilising national energy prices beyond the normal movement in global energy prices.
"The predictable cost of a carbon tax facilitates government and business decisions about investments and other steps to reduce emissions and thereby reduces the burden of the tax," Shapiro writes.
The environmental costs of greenhouse gases occur over a long term and a government can raise or lower the carbon tax rate year by year to achieve the long-term emission reductions it seeks, he argues.
Unlike emissions trading, administration of a tax would be straightforward. Each country would apply a tax rate to every energy source, which after counting the country's current energy taxes and subsidies, would produce the global net carbon tax rate.
Shapiro also says corrupt governments may take advantage of cap-and-trade systems by distributing their permits in ways that favour their supporters or understating their actual energy use and emissions to earn billions of dollars by trading in "excess" permits.
