“The only way to do this is to send information through markets,” Professor Stavins said. An economy-wide carbon price, he argues — as does much of the economics profession, including many Republicans — would give everybody the incentive to reduce emissions at the lowest possible cost.
But little progress has been made. While carbon is often implicitly priced via excise taxes and other taxes on energy, the price tag is almost always too low to encourage substantial reductions in CO2 emissions.
Economists at the Organization for Economic Cooperation and Development estimated that the effective tax on carbon among the world’s 41 biggest polluting nations, which account for some 84 percent of global carbon emissions from energy, amounted to about $16.60 per metric ton of CO2, on average. That’s about $20 less than the estimate of carbon’s social costs.
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Still, for all the skepticism from many quarters, the evidence that prices can do the job better than anything else is starting to sink in. The World Bank tallied eight new carbon markets that opened their doors in 2013. China is experimenting with seven carbon market pilot programs and is expected to start a nationwide trading program next year. Mexico and France introduced new carbon taxes last year. Mexico cut its oil subsidies.
President Obama’s clean power plan might lead to more carbon pricing, encouraging states to reduce their emissions by joining regional carbon exchanges.
Even Republicans might be brought on board. Professor Graetz at Columbia argues there is a good case for a carbon tax as part of a broad fiscal overhaul, using the revenue to offset cuts in payroll taxes.
Taxing carbon, a “bad,” to reduce taxes on wages, a “good,” could improve economic efficiency. And it could disentangle the debate over climate change from the perennial ideological battle over the size of government.
Read more at U.S. Leaves the Markets Out in the Fight Against Carbon Emissions
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