Policy Choice

An interesting policy choice comes up with renewable energy. There are several paths the government can take:

1) Spend government money on subsidizing R&D for renewables.
2) Spend government money on subsidizing specific existing technologies that are not currently cost effective without these subsidies.
3) Tax carbon emissions and let the market decide which technologies are the most cost-effective to switch to to avoid carbon emissions.

We are currently doing (1) and (2). Congress seems to be balking at (3), taxing carbon or imposing a cap-and-trade system. It will be a tragedy if this does not go through.

I am against (2), because every dollar we spend subsidizing immature technologies is a dollar that could have been spent on (1), which is ultimately a bigger payoff. (3) is a very good option and could be made politically marketable if sold to the public (and congress) as a revenue-neutral measure by offsetting taxes imposed with reductions in income tax. However, a tax on carbon emissions would not be a progressive tax, that is, the poor would pay a larger share of it than they currently pay of income taxes.