For at least the next five to ten years, no politically palatable price on carbon is going to serve as a primary driver of change. Anything that can pass simply won't be high enough and its effects will be too diffuse. The main goal with your bill should be to establish a framework whereby a carbon price is implemented and steadily raised. The initial price can be low — low enough to avoid the kind of political backlash that has poisoned previous efforts — and phase in over time so affected industries have time to prepare. At least in the short term, we should think of carbon pricing as a funding mechanism for clean energy policies. It's a form of responsible budgeting, nothing more, nothing less.
....In exchange for reducing the role of carbon pricing, you should push to strengthen and expand the clean energy and efficiency provisions in your bill. Without a substantial price on carbon those policies will have to be that much more robust if they are to meet the goal President Obama promised in Copenhagen: 17 percent from 2005 levels by 2020.
And Mr Drum says:
Actually, this isn't really an "exchange." It's more like two pieces of a puzzle fitting neatly together.
The price of carbon created by a cap depends on how much carbon emitters are required to cut. If they have to cut a lot, the price is high. If they only have to cut a little, the price is low. And as many, many people have pointed out already, there's a lot of low-hanging fruit available on the carbon front. This stuff is mostly within the realm of the efficiency and clean energy provisions that Dave talks about, and it has a lot of potential to reduce carbon considerably all on its own. If these provisions are implemented, a carbon cap would most likely require only a small additional carbon reduction, which means that a cap that moved steadily toward a 17% reduction over the next decade would probably produce a pretty modest price for carbon. It's only in the decade after that, when the cuts become larger, that the declining cap would start to produce a really significant carbon price.
Let's summarise. Both writers are interested in generating large reductions in carbon. Mr Roberts argues that if politics dictates the enactment of a too-low carbon price, then the bill should make up for that by doing more to encourage efficiency by other means (like fuel efficiency standards for automobiles). Mr Drum is saying that improved efficiency will reduce the carbon price needed to achieve a given carbon reduction.
I think it's worth looking at this economically to clarify a bit. Underlying the function of cap-and-trade or a carbon tax is the relationship between price and quantity, which economists call elasticity. Sometimes, a given change in price doesn't produce much of a change in quantity. When petrol prices rise, consumers buy just a little less petrol. Other times, price changes produce big quantity swings. If one of many makers of generic ibuprofen increases its price, quantity demanded will fall to almost zero.
Key to this relationship is the availability of substitutes. More and better substitutes lead to more of a quantity response. Someone dependent on an automobile to get to work has few alternatives when the price of petrol rises, and so his driving doesn't fall by much. A commuter who typically drives but who lives within walking distance of a commuter rail station, by contrast, may respond more strongly to rising petrol prices. And given a range of near-perfect substitutes, as in the generic ibuprofen example, a price increase for one brand leads to an almost complete drop in quantity demanded.
An important point is that this relationship isn't static. If petrol prices rise a great deal today, there is very little a commuter can do about that immediately. Within a week or so, however, the commuter may have arranged a carpool. Within several months, the commuter may have opted to trade in an old gas-guzzler for a more efficient automobile. And within a year or more, if prices remain high, the commuter may change the location of his job or residence to reduce the need to drive at all. As time passes, responses to price changes become more complete.
The economy is heavily dependent on carbon fuels at present, and so to reduce carbon output by a lot and quickly would require a high carbon price, which would be extremely painful for consumers (as it would be high precisely because no good substitutes are available). An initial low price, on the other hand, would not produce much of a demand response at all, but it good generate the incentive to begin developing carbon substitutes, particularly if carbon prices are expected to rise. Then, later, when prices do rise, the availability of substitutes—electric cars, transit lines, efficient appliances, and so on—will mean that more carbon can be eliminated with less of a price increase.
So when we talk about things like efficiency requirements and their impacts on prices and carbon output, what we're really trying to get at is the development of alternatives to carbon-intensive activity. A carbon price is likely to be the most efficient way to develop substitutes for carbon-intensive activities and technologies. From a political economy standpoint, however, it's worth noting that government investments in substitutes or government efficiency regulations can make demand for carbon more elastic, clearing the way for adoption of an appropriate carbon price.