My standard argument is that if it is cold we just heat the house. We must drive to work so we use the car. Will doubling the cost of energy by taxing it exorbitantly change much, never really did. Perhaps a few may die from freezing, that will reduce demand, and more will be unemployed which is another decrease. Simple logic dictates that demand is just not that flexible. Will it force Harvard economics faculty to drive from Newton to Cambridge in a car pool, no way, take the T, unlikely.
There is a review in the NY Review of Books of a few recent additions to this nonsense:
... a tax specialist, and his chapter on energy taxation is especially interesting. Environmental economists have emphasized the use of externality taxes (sometimes called Pigovian taxes after their first important advocate, English economist Alfred Pigou). The idea is to levy a tax on “bads” that have negative externalities, where the tax is equal to the size of the external costs. In the case of coal, the “bad” is largely sulfur dioxide. If the pollution from coal were currently taxed proportionally to its damages, the price of coal-fired electricity would increase from 9.0 cents to 15.2 cents per kilowatt-hour (kwh).
]
If we were to calculate the externality taxes implied by the costs shown
in the table (on sulfur, carbon dioxide, and other harmful pollutants),
these would raise over $300 billion per year in revenues. Somewhat more
than half of this would be taxes on the global warming externality,
while somewhat less would be charges on the conventional pollutants.
A second point is that environmental taxes can play a central role in
reducing the fiscal gap in the years to come. These are efficient taxes
because they tax “bads” rather than “goods.” Environmental taxes have
the unique feature of raising revenues, increasing economic efficiency,
and improving the public health.
Now let me return to my argument. If global warming exists, no I do not believe in it, it either exists or does not and if it does it is either man made or not, and those are matters of science and not belief, so I leave the answer to science and the scientific method, not the political or religious method. But in a strange was if we get warmer up here in the north then we will have more trees and warmer winters thus using less energy and absorbing more CO2. Perhaps a negative feedback loop, perhaps a boon for Canada.
Yet back to Pigou. The increase in taxes as stated in the review will raise $300 billion in tax, so why not just call it a tax. It will not make the drive from Manchester NH to Cambridge any shorter, just more expensive. So the more well off with move there driving up real estate and driving the poor folks farther north at greater distances. The Government ill get more taxes and overspend even on those.
Now to the externalities. Let me use the oft quoted Coase example, the railroad and the farmer. A railroad has a right of way through a farmers field. The farmer grows wheat and the train kicks sparks onto the wheat field. A fire starts and burns the farmer's wheat. The farmer can sue the railroad for damages, and if one assume zero transaction costs the railroad will most likely lose. The railroad can then either continue to pay farmers or fix the train. The costs of this externality, fires in farmers fields, can be mitigated either way.
Moreover the farmer can attach a cost to the damage. Wheat yields some many bushels per acre, the price of wheat is so much a bushel, the fire covered so many acres. Plain and simple, just do the arithmetic. The key to Coasean damages is the ability to define value, and value is the estimation of future cash flows.
The problem with the Pigou tax is several fold. First that it really does little. Second is that the Government just ups the tax ante, and third the concept of externalities fails. What is the cost, like that field of wheat, there we have a good measure, with CO2 we have academics and Government hacks coming up with nonsense, been there done that. There is no simple calculation, there is not clear person harmed and the harm is highly contingent and speculative at best.
Thus despite the wonderful world of Harvard economists and their schemes, this one still stands wanting.
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