Friday, June 15, 2012

Noah Smith - Carbon taxes won't work. Here's what will.

2. Global carbon taxes present a basically insoluble coordination problem. The U.S. emits about 1/6 of global carbon emissions. Cut U.S. emissions by 30% (a huge cut) and you cut global emissions by 5%; not enough to make a dent in global warming. Now realize that China, which now emits about 1/4 of global carbon emissions, has now twice scuttled international efforts to coordinate a reduction in carbon emissions (first at Copenhagen and then at Durban). How about Europe and Japan and Russia and Canada? Well, they agreed to carbon restrictions at Kyoto, and then promptly broke their quotas andwent right on increasing their emissions.
Coordination problems are really really hard.
3. Carbon taxes are undermined by free trade. If you put a tax on carbon-emitting activity in the U.S., it'll raise the domestic price of (for example) coal. This will provide an incentive for U.S. coal miners to export their coal to other countries, especially China, as they are now trying to do. It will also provide an incentive for Americans to buy more imports from countries where it is still cheap to burn coal (e.g. China). In other words, if you tax the burning of American coal by American companies, you will increase the burning of American coal by Chinese companies, and the de facto burning of Chinese coal by American consumers. These effects will not completely cancel out the effect of a U.S. carbon tax, but they will work against it substantially. The only way to stop this would be to tax both carbon exports and the implied carbon content of imports. This would lead to big rises in tariffs.
Read it at Noahpinion
Carbon taxes won't work. Here's what will.
By Noah Smith

Keeping with the topic of climate change, Noah outlines six different reasons to be skeptical of carbon taxes. Although this policy has broad support, I tend to agree that most discussion undervalues the economic costs and overvalues the potential effects and likelihood of carbon reduction.   

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