WE ARE ALL PIGOVIAN NOW:

One of the few uncontroversial conclusions of economics is that it is better to tax "bads" than "goods". Wages and profits are desirable objectives, and governments have no good excuse for obstructing them. They are taxed largely for reasons of convenience, at the cost of disincentives to wage-earning and profitmaking that are a drag on the economy.

Energy consumption, on the other hand, is not an objective for anyone. Indeed, the negative externalities of energy use, including local pollution and greenhouse gas emissions, mean that, other things being equal, an economy that burns less fuel is better off.

That insight lies behind support from across the political spectrum for a tax linked to the carbon content of fossil fuels, generating revenue that could be recycled through cuts in other taxes. 

Four leading Democrats in Congress this month proposed such a tax, and asked for suggestions for how it could be implemented. On the Republican side, a carbon tax has been backed by several prominent figures, most notably Greg Mankiw of Harvard, a former economic adviser to George W. Bush and Mitt Romney. [...]

While the adjustment to higher energy costs would have some negative impact, it would be offset by the benefits of cuts in other taxes. Curbing consumption would also improve energy security, making the economy less vulnerable to commodity price shocks. President Barack Obama on Friday set out an energy agenda including reduced oil imports, greater use of natural gas and increased energy efficiency. A carbon tax would help meet all of those goals.

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