Here I cut to the chase to spotlight the 10 reasons Shi-Ling Hsu concludes a carbon tax is THE most effective mechanism to combat climate change and motivate the private sector to help solve it while raising much-needed revenue for governments with the where with all to pass one.
I take the liberty of paraphrasing to avoid speaking ‘over the heads’ of people who would benefit from reading this digest. I also include what I think are the most helpful quotes to help grasp the gravity of what Professor Usu is trying to say.
1. It’s economically efficient. An accurate disincentive for using carbon-based fuels could mimick the increment of damage — the marginal damage — caused by each ton of carbon dioxide released into the atmosphere. “The simple genius of a carbon tax is that it aggregates disparate pieces of information, transmitting a price signal at everystage in which there is fossil fuel usage . . . no data collection is required and no model is required.”
2. It avoids creating physical capital that could actually harm the environment — e.g. coal-fired power plants. “The problem with capital is that once we have it, its high cost makes it difficult to dispose of.”
3. It doesn’t interfere with other regulatory instruments or jurisdictions. “A carbon tax would have the advantage, because of its simplicity, of forming the strongest foundation upon which other policies can stand.”
4. Government is better at reducing bad actions than increasing good good actions. Taxes work better than subsidies.
5. Incentives for innovation — price effects. It would impact emissions not only from the largest carbon sources such as power plants and industrial facilities but all carbon sources.
6. Incentives for innovation — price breadth. It focuses new products and services no matter how much money can be saved by using less electricity or electricity from a different source, e.g. renewables.
7. It’s easy to administer. There are no “offsets” as would be needed with a cap-and-trade program. “Awarding an offset for a project that purports to avoid emissions increases rather than actually reducing them is a tricky proposition.”
8. International coordination is doable. “An international accord based on a carbon tax scheme would avoid the unfortunate appearance of China being allocated some cap amount by an external bureaucracy.” It “would not represent . . . a binding limit to economic growth.”
9. It raises badly needed revenue. This might not be the panacea that some think it would. The tax would only raise a lot of money if it changes behavior. The less carbon emitted, the lower revenues would be. That said, there is a LOT of money to be raised by discouraging carbon emissions.
10. It avoids the risk of catastrophe. In the long-run, THIS is the ultimate measure of efficiency from a public welfare perspective.
Of all the book reviews one can find on the Web, I found this one, by Mat McDermott for Treehugger, the most helpful.
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