Another defence of a carbon tax

Economists still think it's a good idea

Greg Mankiw, an economist, Harvard professor and former advisor to George W. Bush, explains (again) the benefits of a carbon tax.

Yet another problem with such regulations is that they can influence only a small number of crucial decisions. In a free society, the government can’t easily regulate how close I live to work, whether I car-pool with my neighbor or how often I don a cardigan. Yet if we are to reduce carbon emissions at minimum cost, we need a policy that encompasses all possible margins of adjustment.

Fortunately, a policy broader in scope is possible, which brings us to the third approach to dealing with climate externalities: putting a price on carbon emissions. If the government charged a fee for each emission of carbon, that fee would be built into the prices of products and lifestyles. When making everyday decisions, people would naturally look at the prices they face and, in effect, take into account the global impact of their choices. In economics jargon, a price on carbon would induce people to “internalize the externality.”

Of course, the basic logic of the policy only matters so much.

Regulations to reduce carbon emissions are less obvious than a carbon tax and so probably easier to implement (and maybe cap-and-trade is less obvious than a carbon tax). Beyond that, it matters what the public believes and is willing to accept. Do voters believe climate change is a serious threat? Do they believe climate change is so serious a threat that they should be asked to pay more for certain things? Do they believe that their paying more will result in significant mitigation of the threat? Ultimately you get back to a discussion about taxation and the public’s general attitude toward government.

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