ONLY TAXES CAN KEEP GAS PRICES AS HIGH AS WE NEED THEM:

The Tax That Saved the Planet: Sure, we can keep trying to reduce carbon emissions through the Kyoto Protocol and other schemes. Or we can do the smart thing. (Stephen Probyn, April 23, 2007, Vanity Fair)

The Greg Mankiw in 2006, and although its original purpose was not to fight global warming, this group of academics and policy wonks has advanced an idea that might just be the weapon we need. Atop a rising tide of other experts, Pigovians will tell you that carbon taxes, not the Kyoto Protocol or any other regulatory scheme, are what we need to deal with the climate-change crisis and a host of other global ills.

The simple solution, they say, is to raise the cost of emitting carbon to the point where each of us voluntarily cuts our energy consumption and reduces carbon emissions. What's the best way to do that? Not a regulatory emissions-trading scheme, such as Kyoto, which is at once weak and unwieldy. Not a worldwide regime of rationing, which is politically unthinkable. Rather, the Pigovians say, we can change behavior by changing the price signals that people receive. This is done by simply raising taxes on commodities we don't like to the point where consumers reduce consumption.

So-called Pigovian taxes don't really work when it comes to "sin taxes" on alcohol and cigarettes; that's because these commodities are pretty well the end products in themselves—if you want an alcohol buzz or a nicotine rush, there isn't much alternative. But fossil fuels are different. Nobody wants fossil fuels for themselves; what they want is transportation or heating or television. Pigovian taxes can work as greenhouse-gas policy because they induce us both to curb our consumption and, in the longer term, to introduce new technologies.

Sin taxes have worked rather well on reducing smoking rates too.

Posted by Orrin Judd at August 11, 2008 9:54 AM