Let This Be the Year When We Put a Proper Price on Carbon - Lawrence Summers

The case for carbon taxes has long been compelling. With the recent steep fall in oil prices and associated declines in other energy prices it is overwhelming. There is room for debate about the size of the tax and about how the proceeds should be deployed. But there should be no doubt that starting from the current zero tax rate on carbon, increased taxation would be desirable.

The core of the case for taxation is the recognition that those who use carbon-based fuels or products do not bear all the costs of their actions.  Carbon emissions exacerbate the global climate change problem.  In many cases they contribute to local pollution problems which immediately harm human health.  Removing fossil fuels from the ground involves both accident risks and environmental challenges.  And even with the substantial increases in US oil production we remain a net importer, so increases in consumption raise our dependence on Middle East producers.

When we drive our cars, heat our homes or use fossil fuels in more indirect ways, all of us create these costs without paying for them.  It follows that we overuse these fuels.  This is not some kind of government planning argument — it is the logic of the market: that which is not paid for is overused.  Even if the government had no need or use for revenue, it could make the economy function better by levying carbon taxes and rebating the revenues to society.

While the recent decline in energy prices is a good thing in that it has on balance raised the incomes of Americans, it does exacerbate the problem of energy overuse.  The benefit of imposing carbon taxes is therefore enhanced.

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