August 31, 2013
"INTERNALIZE THE EXTERNALITY":
A Carbon Tax That America Could Live With (N. GREGORY MANKIW, 9/01/13, NY Times)
Posted by Orrin Judd at August 31, 2013 9:06 PMFortunately, a policy broader in scope is possible, which brings us to the third approach to dealing with climate externalities: putting a price on carbon emissions. If the government charged a fee for each emission of carbon, that fee would be built into the prices of products and lifestyles. When making everyday decisions, people would naturally look at the prices they face and, in effect, take into account the global impact of their choices. In economics jargon, a price on carbon would induce people to "internalize the externality."A bill introduced this year by Representatives Henry A. Waxman and Earl Blumenauer and Senators Sheldon Whitehouse and Brian Schatz does exactly that. Their proposed carbon fee -- or carbon tax, if you prefer -- is more effective and less invasive than the regulatory approach that the federal government has traditionally pursued. [...]Among economists, the issue is largely a no-brainer. In December 2011, the IGM Forum asked a panel of 41 prominent economists about this statement: "A tax on the carbon content of fuels would be a less expensive way to reduce carbon-dioxide emissions than would a collection of policies such as 'corporate average fuel economy' requirements for automobiles." Ninety percent of the panelists agreed.
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