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The economic impacts of carbon pricing

What the science says...

Select a level... Basic Intermediate Advanced

Climate economics research shows that in reality, we are harming the economy by failing to implement CO2 limits.

Climate Myth...

CO2 limits will harm the economy

"Legally mandated measures for reducing greenhouse gas emissions are likely to have significant adverse impacts on GDP growth of developing countries [...] This in turn will have serious implications for our poverty alleviation programs." (Pradipto Ghosh)

When you start talking about economics, the eyes of many a climate science geek (present company included) begin to glaze over.  However, this is a critical subject.  When you ask a climate contrarian why they won't support climate action just in case they are wrong, the contrarians will invariably assert that pricing and reducing carbon emissions will harm the economy.  However, this assertion is in direct contradiction with the body of climate economics literature, which actually shows the opposite is true.

For example, a new paper by Johnson and Hope 2012 evaluates the overall cost of carbon emissions via climate change damages, and finds that when these costs are taken into consideration:

  • current estimates of the overall costs of carbon emissions (via damage from climate change) are generally too low
  • when those costs are taken into account, solar energy is already cheaper than coal, and wind is probably cheaper than natural gas
  • by failing to put a price on and reduce carbon emissions, and by continuing to rely on fossil fuels, we are damaging the economy

The social cost of carbon (SCC) is effectively an estimate of the direct effects of carbon emissions on the economy - it estimates how much damage our emissions cause via climate change, or how much it will cost us to adapt to climate change.  The SCC takes into consideration such factors as net agricultural productivity loss, human health effects, property damages from sea level rise, and changes in ecosystem services.

The SCC is a difficult number to estimate, but is key to any cost-benefit analysis of climate legislation.  The main argument against putting a price on carbon emissions is that doing so will harm the economy.  The only way to evaluate this assertion is to compare the costs of carbon pricing to the benefits (the avoided costs from climate change damage), and the benefits are measured via the SCC.

Johnson and Hope 2012 (JH12) notes that the U.S. Interagency Working Group on the Social Cost of Carbon (hereinafter "Working Group") published its first SCC estimates in 2010, with a central value of $21 per metric ton of CO2, suggesting that economic analyses also be performed for SCC values of $5, $35, and $65.  JH12 note that these figures have been criticized as too conservative for several reasons.

"These estimates have been criticized for relying upon discount rates that are considered too high for intergenerational cost–benefit analysis, and for treating monetized damages equivalently between regions, without regard to income levels."

JH12 re-estimate the SCC values using a range of discount rates and methodologies they consider more appropriate for the very long time horizons associated with climate change.  As a result, they estimate the SCC is several times higher than the Working Group estimate.

Equity Weights

JH12 note that the Working Group approach did not assign “equity weights” to damages based upon relative income levels between regions.  In this approach, a dollar’s worth of damages occurring in a poor region is given more weight than one occurring in a wealthy region.  This is because as JH12 note,

"poorer regions are expected to have far less income to cope with damages than are wealthier regions, a problem compounded by the fact that they are also expected to bear more of the damages while having contributed the least to the problem"

That poorer regions are expected to be the most impacted by climate change was demonstrated by Samson et al. 2011 (Figure 1).

vulnerable

Figure 1: Per capita emissions vs. vulnerability to climate change, from Samson et al. (2011)

In their paper, JH12 do apply equity weights in their SCC calculations.

Discount Rates and Roberts Otters

The term 'discount rate' refers to the time value of money - how much more  a dollar is worth to us today than next year, related to interest rates.  A high discount rate means we would much rather have money today than in the future.

This is a key variable in determining the proper SCC.  The costs of emissions reductions are primarily incurred in the short-term, whereas the economic benefits of emissions reductions (the avoided costs from climate change damage) mainly occur in the future.  Thus if we say a dollar is worth much more now than in 30 years, emissions reductions costs are weighted much more heavily than the benefits of avoided climate damage, resulting in a lower SCC. 

For example, JH12 note that 25 years from now, for a 5% annual discount rate, $100 worth of climate damage has a present value of only $30 ($100/[1.0525]), due to the effect of compound interest.  The present value of $100 worth of damage falls to 76 cents 100 years in the future if using a 5% discount rate.  Thus the lowest SCC estimates, for example from economists Richard Tol and William Nordhaus, tend to result from assuming very high discount rates (3 to 5%).

There are two main justifications for using a high discount rate - the assumption that future generations will be wealthier than today's (and their increased wealth will more than offset the costs of climate change), and the opportunity cost of foregone investments (money spent reducing emissions could have been invested elsewhere).

JH12 criticize the Working Group for selecting relatively high discount rates.  The Working Group used 2.5%, 3%, and 5% (recommending 3% for estimating the SCC central value), based on current market interest rates, which they argued avoids the need for imposing subjective values.  But that's a problem because climate change has costs that are difficult to quantify economically - for example the value of human life, and thus the cost of people dying of starvation if there is insufficient food as a result of agricultural damage from climate change.  Using a 3% discount rate completely neglects the "subjective" cost of human suffering and human life.

JH12 also argue that the Working Group did not consider the full range of consumption interest rates observed in markets, nor intergenerational discount rates established in the economics literature and recognized in government guidelines.  They note that in a 2008 technical support document, the U.S. Environmental Protection Agency (EPA) suggested a discount rate between 0.5% and 3%, noting:

"A review of the literature indicates that rates of three percent or lower are more consistent with conditions associated with long-run uncertainty in economic growth and interest rates, intergenerational considerations, and the risk of high impact climate damages (which could reduce or reverse economic growth)"

As discussed above, one of the main justifications for using a high interest rate is the assumption that future generations will be wealthier.  However, as the EPA notes here, major climate impact damages could prevent that from happening, if we have to devote major financial resources to adapting to climate costs.

As one counter-example to the Working Group, the Stern Review for the British government used a 1.4% discount rate.    There are many other reasons for using a lower discount rate, for example the fact that money isn't everything, and as noted above we also need to consider the climate-related suffering of future generations.  Dave Roberts has a good discussion of discount rates along with photos of otters to keep your interest, since this isn't the most enthralling subject to read about.

bored otter

In their study, JH12 use discount rates of 1%, 1.5%, and 2%, and compare their results to those in the Working Group's analysis with higher discount rates.

What is the Appropriate Discount Rate?

So JH12 argue for a discount rate between 1% and 2%, whereas the Working Group used 2.5% to 5%, the Stern Review used 1.4%, and more conservative economists use 3% to 5%.  But which is right?

Well, the answer is somewhat subjective, which is why the Working Group decided to try and remove subjectivity and simply choose conservative market-based values.  But as discussed above, there is a very strong case for lower discount rate values.  What if we split the difference?

Weitzman (2007) in discussing the Stern Review notes that for interest and discount rates, splitting the difference is mathematically not the same as taking the average.  In his terminology, "r" is the interest rate (emphasis added):

"A chance of r = 6 percent and a chance of r = 1.4 percent are not at all the same thing as splitting the difference by selecting the average r = 3.7 percent.  It is not discount rates that need to be averaged but discount factors.  A chance of a discount factor of e−6 a century hence and a chance of a discount factor of e−1.4 a century hence make an expected discount factor of 0.5e−6 + 0.5e−1.4 a century hence, which, when you do the math, is equivalent to an effective interest rate of r = 2 percent...with the above numbers it is a lot closer to the Stern value and is not anywhere near the arithmetic average of r = 3.7 percent."

So this also strenghthens the case for using discount rate and SCC values in the JH12 range.  We should note that Weitzman (2007) ultimately argued for discount rates in the 2–4% range, as opposed to the 6–7% range.  However, now that we are considering discount rates in the 1–5% range, splitting the difference would result in a discount rate of ~1.7%.

Results and their Importance

JH12 find central SCC values of $266, $122, and $62 per metric ton of CO2 using discount rates of 1%, 1.5%, and 2%, respectively.  They also estimated SCC using declining discount rate schedules (UK Green Book and Weitzman), finding central values of $55 and $175 per metric ton of CO2, respectively.  These central SCC values exceed the Working Group central value by factors of 2.6 to 12.7.

So what does this mean?  Well, the break-even point between carbon emissions reductions' costs and benefits is estimated at around $5-10 per ton of CO2 (Figure 2), meaning that if the real-world cost of carbon emissions exceeds $9 per ton, the benefits of carbon pricing will exceed the costs.  

$9 per ton is essentially the lowest possible value for SCC, if we use a very high discount rate of 5%.  Using more justifiable discount rates, SCC is between $55 and $266 per ton of CO2.  In other words, the benefits of reducing CO2 emissions far outweigh the economic costs.

Figure 2: Costs (light blue and red points) and Benefits (dark blue and purple points) vs. SCC values ($ per ton of carbon dioxide) using two economic models (ADAGE and IGEM), from New York University School of Law's Institute for Policy Integrity.  Note the x-axis label contains a typo - SSC should read SCC.

Note that even exceptionally conservative economists like William Nordhaus - whose SCC central estimate is only around $9 per ton of CO2 (in current dollars) - argue that carbon emissions reductions will benefit the economy.  Nordhaus has frequently been cited by climate contrarians, and his work misrepresented to argue against reducing emissions.  Nordhaus recently decided to set the record straight:

"My research shows that there are indeed substantial net benefits from acting now rather than waiting fifty years [to reduce CO2 emissions]...the loss from waiting is $4.1 trillion."

And remember, those results are based on an SCC of around $9 per ton of CO2 emitted, whereas JH12 argue that more appropriate discount rates put SCC between $55 and $266 per ton.  There is simply no question that putting a price on carbon emissions will result in a net savings and benefit the economy, even under the most conservative estimates.

Which Energy Sources are Actually Cheapest?

A frequent argument from opponents to emissions reductions and carbon pricing, for example John Christy, is that "cheap" fossil fuel energy is key to the development of poorer nations.  However, in claiming that fossil fuels are cheap, this argument neglects the climate impacts from associated greenhouse gas emissions - the SCC (not to mention neglecting the fact that poorer nations tend to be most impacted by climate change, as illustrated in Figure 1). 

This raises an important question - when we include the SCC, which energy sources are actually the cheapest?  JH12 examine this question for coal, natural gas, wind, and solar photovoltaic (PV) energy technologies (Table 6), with some caveats that their break-even SCC values are conservative.

"New natural gas and wind are competitive over new coal absent any pollution costs, and therefore no SCC is required to make them cost-effective. An SCC...of $50, would justify building solar photovoltaic over coal...An SCC of $215 would justify solar over natural gas....Wind would require an SCC of $74 to be cost-effective over natural gas."

"The break-even SCCs presented here are conservative in three respects. First, the SCC grows over time, whereas the SCCs used here are for 2010.  Accounting for the growth of SCCs over time would increase the cost of generation (inclusive of carbon damages) with coal or gas for a given starting SCC, reducing the 2010 SCC that corresponds to break even generation costs. Second, technological innovation may continue to drive down costs of wind and solar in the future, further lowering the break-even SCC. Third, we do not account for externalities other than air emissions from the power plants, such as methane emissions from natural gas wells and land disturbance from coal mining."

table 6

According to their results, solar PV energy is already cheaper than coal if we use a discount rate of 2%, and the price of solar PV technology is also falling rapidly.  Wind energy is also cheaper than natural gas if we use a discount rate between 1.5% and 2%, and solar PV is cheaper than natural gas for a discount rate between 1% and 1.5%.

Summary

There are several very important points we can take from this research.

  • The current range of SCC values used by the U.S. government is too conservative.  An appropriate central estimate would be around $100 per ton of CO2, with a range between $21 and $266 per ton.
  • This central estimate exceeds the break-even point between carbon emissions reductions costs and benefits ($5-10 per ton) by an order of magnitude.  The break-even point also falls below the range of appropriate SCC values ($21 to $266 per ton).  This means we can be very confident that reducing carbon emissions will result in a net economic benefit.
  • Even the most conservative economists agree that reducing carbon emissions will result in a net economic benefit.
  • Solar PV energy is probably already cheaper than coal energy, and wind is probably cheaper than natural gas, when carbon emissions costs are considered.
  • Overall, by failing to put a price on and reduce carbon emissions, and by continuing to rely on fossil fuels, we are damaging the economy.  Those who argue the converse are failing to account for the costs of damage caused by climate change.

It's also worth noting that a new report from the Congressional Research Service concluded that a much more modest carbon tax of $20 per ton of CO2 - on the very low end of the appropriate SCC range - could cut the projected 10-year deficit in the USA by 50 percent, from $2.3 trillion down to $1.1 trillion.  Another new report by the DARA group and the Climate Vulnerable Forum, written by more than 50 scientists, economists and policy experts, and commissioned by 20 governments estimates that climate change is already contributing to the deaths of nearly 400,000 people a year and costing the world more than $1.2 trillion annually, wiping 1.6% from global Gross Domestic Product every year.  So the costs of failing to price carbon and reduce emissions are already very real.

Last updated on 29 September 2012 by dana1981. View Archives

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Further reading

Only tangentially relevant but a nifty java animation at the Quaker Economist projects the world's future energy production and when it's expected to peak.

Comments

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Comments 1 to 25 out of 111:

  1. Do these analysis consider the global industry transfer- it may destroy the last bit of heavy industry in the US and send it somewhere they have no problem polluting much more- let alone other effects of that ? How about the cost the massive new bureacracy for this tax- I admit less than that for a carbon trading scheme? Even more disasterous for somewhere like Australia and no net benefit on carbon dioxide output.
  2. Not much of a problem. Massive new bureaucracy? I don't think so. Taxes are one thing modern governments have lots of experience with - income taxes, goods & services, excise, import duties - all well established, ho-hum, routine procedures. Hand over the legislation and the public servants will just do the same as they've always done. Heavy industry, light industry, any industry? All you have to do is organise import duties to match homegrown production taxes so that it won't matter where the stuff is produced, the same imposts will go on.
  3. Would Cap-and-trade be an effectual way of significantly reducing greenhouse gase emissions? Or do we need a much more aggressive bill to make large differences in greenhouse gas emmisions
  4. Cap-and-trade offers no incentives for reducing emissions beyond the set limits. To me, it looks like a shell game, CO2 emissions aren't reduced and the carbon credit brokers are the only ones to make money. I was pleased to discover some time ago that James Hansen and others had reached the conclusion before I did, that a revenue-neutral, phased-in carbon tax was the most sensible way to reduce emissions. I hope this site is on the level http://www.carbontax.org/ It appears to be, but sometimes it's hard to tell.
  5. Chris G, it looks legit, the owner of the domain is Thomas Stokes who seems to be reputable. Having just read Hansen's writings more carefully here http://www.columbia.edu/~jeh1/mailings/2010/ I agree with the tax and dividend approach. If it were proposed with a decent phase-in period (since I also believe there is no urgency), I would support it over cap and trade because cap and trade is much harder to measure and enforce.
  6. Berényi - Benefits look to outweigh costs by a factor of 2 to 8, neglecting benefits such as decreased air pollution, ocean acidification, and overall climate change. Your cost argument does not hold up.
  7. #6 KR at 06:14 AM on 19 February, 2011 Berényi - Benefits look to outweigh costs by a factor of 2 to 8, neglecting benefits such as decreased air pollution, ocean acidification, and overall climate change. Your cost argument does not hold up. Come on. Have you actually read Policy Brief No. 4 from Institute for Policy Integrity (which is not a peer reviewed paper so I wonder how is it allowed at this site at all)? Anyway, it all depends on discount rate, about which the authors say The interagency review process acknowledged that "[t]he choice of a discount rate, especially over long periods of time, raises highly contested and exceedingly difficult questions of science, economics, philosophy, and law." The benefits Holland & Schwartz are talking about are clearly not economic benefits, as they depend on such things as science, philosophy and law, but never on supply and demand, so they do not constitute a true income. Therefore they are not comparable to costs. End of story.
  8. Berényi - I looked at a number of the analyses. Cost estimates per US household were estimated at $80-160/year, or ~$20-50/person/year, not too much, with lower prices for lower income families. Economic benefits include deficit reduction, $$ for investment in renewables/energy efficiency/lower polluting tech, and a reduction in greenhouse gas accumulation, hence a reduction in warming speed and mitigation of global warming consequences and their associated costs. And that's completely without considering the "Other Side of the Coin" paper, which uses a range of societal carbon costs estimates established by fairly detailed Department of Energy estimates. If you don't like that paper, take the estimates and do the calculations yourself. Sounds like an good economic trade to me. Avoiding some of those considerable upcoming costs is income, if you can look at and plan for the future - rather than being short-sighted about immediate rewards.
  9. Berényi - As an example of climate change costs: the Central Valley (around Sacramento) in California, USA, is a major 'bread-basket' region, producing 8% of the USA agricultural output. That agriculture is fed by year-round Sierra mountain snowcap runoff, which is shrinking due to global warming and reduced snow accumulation. Rice crops will be among the first to suffer, but all agriculture needs water - 20-50% less over the next century. Walnuts, cherries, prunes and peaches, on the other hand, require lower winter temperatures to produce, and are declining as well; by 2100 about half the $9B annual fruit and nut crop will not be able to survive there. Minimizing these sorts of changes is the economically wise thing to do; I fail to see how you think otherwise.
  10. Berenyi: What is the value of preserving the land in Bangladesh? With only 2 meters of sea level rise 100,000,000 people will be refugees from that part of the world alone. Not to mention all the other major cities around the world that will be inundated. What is the benefit of maintaining those cities versus the cost of building new cities further inland? These are clear economic benefits that have not even been added to most of the analysis cited above, the recent sea level estimates were not available. The infrastructure alone is worth trillions of dollars in the USA.
  11. Energy cannot be creatd or destroyed, except in the minds of those who advocate alternative energies. If something produces less energy than something else, it's going to cost more money to use it. It's not rocket science, and rockets will not get to the moon using wind energy.
  12. Thingadonta, far more solar energy reaches the earth every year than can be used by our civilization. Therefore talking about conservation of energy is irrelevant. The cost of energy is important, and the direct cost of alternative energy is currently greater than the direct cost energy from fossil fuels. However, the indirect costs of fossil fuels are very large. Our society does not seem to care, because those costs will be paid for primarily by future generations rather than by us. Ignoring those direct costs will not cause future generations to thank us.
  13. BP #7 - as discussed in Monckton Myth #11, we have examined studies using discount rates ranging from 1.4% to 5%. In every case the benefits of carbon pricing exceed the costs several times over.
  14. I have a question. Some developed countries like Iceland or Japan are almost devoid of fossil resources (mainly volcanic countries whose ground is too young to contain sedimentary rocks). Obviously, barring any CO2 effect, this would be very interesting for them to develop without using FF. there is no interest in using them if they can make it without them, they're expensive to import : and actually they did it when they could ! Iceland has a lot of renewable electricity (hydraulic and geothermal) and is also mainly heated by geothermal sources. BUT..but... they still use plenty of FF for the rest and they produce as much (or more ) CO2 per capita than comparable countries. So if it were so easy to suppress the use of FF, why didn't they do it a long time ago ? maybe the brilliant engineers of MIT should explain them how dumb they are and give them access to their marvelous solutions ?
  15. Everyone of those taxes produced a massive bucreacracy- Government would have to assess every single carbon dioxide emitter- Your IRS will need employ new people to assess a whole group of tax payers in a totally different way than they have ever done before. Every tax written is a mess of exceptions, special rules. Put in a transfer tax (involves only few extra line of code on financial institions' computing) and abolish all your other taxes. Either fire the IRS or set them to analyse the mass of new information to catch terrorists, organised crime, and general fraud.
  16. cloa513 - good points. But please suggest a better way to reduce carbon emissions that is compatible with your political philosophy. "Skepticism" about climate science because you don't like proposed solutions is illogical.
  17. Gilles has argued that it cannot be both easy and difficult to give up fossil fuels at the same time. As dana has pointed out, that is a strawman argument. It has not been argued that it is easy to give up fossil fuels, but rather that it is technically feasible, and beneficial to do so. By technically feasible, we mean that there is no impediment from physics to doing so - so I guess at a stretch, we could say it is "physically easy", so in this sense, and understood only in this way, it is "easy" to give up fossil fuels. But, this does not even mean that it is technically easy. Going from physics to a usable technology is not always a straight forward path. In the case of fossil fuels as fuels, their use in transport is particularly difficult to find a technically equivalent alternative to using fossil fuels, although there are already many technically adequate alternatives. Transport ships, for example, could use a combination of wind power (sail) and solar power with battery storage to make any trip they currently make - but would take significantly longer to do so (though not more than three times longer). That is a technically adequate solution. Our civilization could operate on that basis, and probably at an advantage economically when the additional shipping cost implied is defrayed against the reduced cost of not needing to ship a torrent of fossil fuels. Business and political communication needs can be adequately substituted for by a combination of high speed internet connections for very fast virtual meetings using Skype equivalents, and solar powered Zeppelins for air transport. Again the transport times will significantly increase, but economic and political costs need not do so in tandem if we adjust behaviour to match what is now technically feasible. Of course, what is not technically feasible at the moment is eliminating fossil fuels while retaining our SUV driving, one person per car, traffic jam loving culture. A switch away from fossil fuels in the short term is going to require significant cultural changes. Not changes in those core parts of western culture that has made our civilization great, of course, but in some of those aspects of our culture which have grown up since the 1950's based on the assumption of an endless supply of cheap fossil fuels. So, this means that while fossil fuels are physically easy (in the strict sense defined above) to replace, they are culturally difficult to replace in the short term. You can easily extend the pairing of easy/difficult juxtapositions: It is physically easy, but psychologically difficult; It is physically easy, but institutionally difficult; It is physically easy, but economically difficult (in one of several possible meanings of that term). In fact, this easy/difficult juxtaposition is very easy to extend, but while rhetorically gratifying in showing that Giles knows so little about what he talks - that he is big on factoids but low on wisdom - it is not profitable. Now, I am perfectly happy to get into the nitty-gritty of this subject with Giles - but only on the condition that he restrict the discussion exclusively to this appropriate thread. If he discusses it anywhere else, except by a simple link back to this thread in other partially appropriate threads (and only in such partially appropriate threads), then I will withdraw from the discussion here as well. I will adopt the principle of not feeding the troll, unless he shows he is not a troll by not trolling other threads. I strongly recommend that other commentators follow the same strategy. I also strongly recommend that the moderators cease telling us to not feed the troll. If you need to tell us that, the troll is trolling and their trolling comments (and any replies) should simply be snipped with a link the appropriate thread for discussion provided. The current moderation policy is simply asking for denier talking points to remain continually unanswered on every thread that is generated - which is unacceptable. So, now it is over to Gilles (and the moderators). I look forward to the discussion.
  18. Now for the *real* impacts of carbon pricing : http://www.foxbusiness.com/markets/2011/04/11/oil-prices-inflation-pose-risk-global-economy-imf/ http://www.nytimes.com/2011/04/19/business/global/19euro.html http://blogs.reuters.com/james-pethokoukis/2011/04/18/the-politics-of-sps-u-s-debt-warning/ = recession, unbearable debts, economic crisis. That's the real world.
    Response: [DB] Please demonstrate the relevance of a link by providing some context showing why its relevant to the thread at hand. Otherwise, you're merely vomiting forth newspaper links (in this case) with no demonstration that you've actually read the post you're commenting on. Future posts lacking such context will receive moderation. FYI: as in the real world of astrophysics, peer-reviewed science publications carry the most weight, don't they?
  19. I think Gilles should try reading the post he's commenting on here, as it refutes every claim he made. Just as one example, try reading the Impact on Gasoline Prices section.
  20. "... a GDP reduction of less than 1%..." Can I presume that GDP is conventionally calculated? In that case electricity, petrol, diesel, coal not sold because of reduced sales (through reduced demand by negawatts or distributed generation investments) will indicate a reduction or "loss" of production - which is exactly what we want in the first place. This would be a bit like saying the country's families are starving - because they started buying packets of seed to grow their own instead of buying fruit and vegetables grown by others.
  21. Giles @18: From his first link: "Oil prices, which surged above $126 a barrel on Friday -- their highest level in 32 months -- retreated on Monday as the African Union signaled progress in Libyan peace talks." Reality check: Each barrel of oil used as fuel releases 0.45 tonnes of CO2 into the atmosphere (highest of three estimates found on the web). Introductory carbon prices are expected to be around thirty dollars per barrel, so that represents a price increase of 13.5 dollars, or just over 10%. Given the volatility of oil prices, that is not an earth shattering rise and would certainly not be, by itself, enough to drive a nation into recession. Indeed, with crude oil representing just 0.04%, the direct inflationary impact of such a carbon price driven price rise would only by a 0.004% blip in inflation. The second link discusses the EU bailout of Greece, and so far as I can tell contains no relevant discussion to this topic. The third link is a discussion of Standard & Poor's downgrading of the outlook on the US financial position. Ironically, that downgrade is likely to have a greater direct adverse impact on the US economy than a carbon tax would, but as it is, it is irrelevant to the topic of this thread. So Gilles's apparent argument to date is that: 1) The real world contains inflationary risks that can potentially lead to recessions; and 2) A carbon tax's contribution of an estimated 0.004% to inflation is so large that it significantly raises those risks. Oddly, I am not convinced by his logic.
  22. Tom, I don't know how it might work in other countries, but Australia's proposal for carbon tax on petrol should have no, nil, zilch effect on retail prices. All they're proposing is that any carbon tax will be offset by matching reductions in excise. No change in the amount going to the government, but it will be paid from the oil companies' pockets instead of the user's.
  23. Gilles#18: "That's the real world. " Here's the rest of the so-called real world, in which the so-called free market is left to itself: Crude Oil Advances as Speculation on ECB Rate Increase Weakens Dollar Oil increased for the fourth time in five days as speculation that the European Central Bank will further raise interest rates strengthened the euro against the dollar, boosting commodities’ appeal as an alternate investment.
  24. I am new to this site and am yet to get my head around a lot of what I am reading. I do want to protect the environment, I would love to see more effort being put into renewable resources. Taxing carbon might be the best way on paper. The part that makes it so scary for me is the ongoing greed of big business. I fear that the cost of living will increase dramatically due to their greed, not based on the logically put predictions made by those proposing the solution.
  25. 212, Tom Curtis, (from another thread here),
    I also find it utterly risible that people claim that public transport is inefficient because it requires subsidies to operate, while completely ignoring that users of private transport never pay the full cost of the roads they use.
    That's an excellent point, even as it relates to the redistribution of wealth issue. The beneficiaries of publicly funded interstate highway and rail systems are inevitably the very wealthy. While we may not enjoy the selection as much, people could very, very easily live a good life style using more locally produced goods, which require less roads and rail infrastructure. Certainly, our current society depends on those two, but by far, the beneficiaries are the extremely wealthy who then accumulate more wealth than they otherwise could. So a "fair" tax on roads and rail really should be on a per-use basis (in which case the small, local businessman would be far more competitive, and the consumers would have a better choice, and free market forces would include that hidden expense of long-distance-transportation infrastructure... but the wealthy would never stand for such a thing).

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