Why cap and trade is preferable to carbon tax

It's the politics. At the International Press Institute* World Congress in Helsinki, Royal Dutch Shell Chairman Jorma Ollila, Charles Kolstad of UC Santa Barbara, and Ali Sayigh of the World Renewable Energy Network (WREN), addressed the question as to which was preferable, cap and trade or a carbon tax:

Question: There is talk about the "green paradox." [Jotman: The "green paradox" says that "policies of lowering carbon demand may aggravate rather than alleviate climate change"] Some areas using more energy, even as others use less. Do we need new taxation or market system to make greenhouse gas reduction more effective? [Jotman: i.e. should there be a carbon tax?]

Charles Kolstad: The green paradox, tax-wise, is that if you tax, producers could reduce the price of oil. Cap and trade gives you insurance on such price reductions by producers.

Jorma Ollila: In a perfect world, "cap and trade" and tax amount to the same thing. The question is, which system addresses the real world better? Industry prefers a cap and trade system to tax for two reasons. First, for SO2 reduction you can buy SO2 certificates. It works well. (Though implementation so far it has been confined and small). The system that was first implemented in Europe proved to have been too liberal in allocating certificates. Some "stupid Euro system" talk resulted in the US media. Second, the only problem with tax is that it is hard to do politically.

Ali Sayigh: A reward system is preferable than tax or punishment. Politicians can't be counted on, we need the media to educate the public.

These remarks were made during the IPI panel discussion on climate change, moderated by Curtis Brainard of the Columbia Journalism Review. Jotman live-blogged the entire panel discussion. See "Technology and innovation: Climate change Rx?"
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* "The International Press Institute is a global network of editors, media executives and leading journalists . . . dedicated to the furtherance and safeguarding of press freedom."