# Tag Info

5

The justification goes back to the work of Pigou in the early 20th century. The essence is this: the burning of fossil fuels creates a negative externality: a cost that is incurred, but not by that consumer, but by the general population, and for a century or so. This in essence creates a kind of "social subsidy": the price does not fully reflect the costs. ...

4

Suppose that, initially, crop A is the most profitable crop that can be grown on a particular farm, yielding an average annual profit of \$X, profit being measured after deduction of all costs (including a normal return to the farmer) other than the cost of the property (ie the land). In a competitive property market, the capital value of the property might ... 4 $$F(R,T)=100000-(R-200)^2-(T-25)^2,$$ where$F$is production (in kg),$R$is rainfall in a year (in mm), and$T$is average temperature over the course of a year (in °C). This says that under the optimal growing conditions of$R=200$and$T=25$, production will be 100,000 kg. If rainfall$R$or temperature$T\$ is higher or lower than these optimal levels,...

3

Prominent economist Greg Mankiw has been a prominent advocate of the kind of change you describe (he invites people to join "The Pigou Club", named for Arthur Pigou who first proposed these kinds of corrective taxes). You can find a nice, non-technical summary of his arguments here. In particular, Makiw deals with some of the weaknesses you identify above ...

3

My conclusion based on reading his paper is that the utility function of an individual or society can't be of the CRRA form presented in the paper. That would indeed lead to scenarios where you could not get out of the bed in the morning, as minimizing the tiniest probability of an enormous risk would warrant infinite sum of money. I will attempt to explain ...

3

global The Dutch energy system is small enough that the ripples to the global supply chain will be very small. However, it is looking possible that there might be some temporary tightness in the global PV module supply chain coming up, after years of capacity expanding faster than demand, so there might be a price-spike up, there, if the Dutch go for rapid ...

3

Summary Bill Nordhaus has made several significant contributions to the economics of climate change. That's something of an understatement. His contributions are not just in the pricing of carbon; they but span microeconomics, macroeconomics, (econometric and other) modelling, the philosophy of economics, and the economics of innovation. Modelling He's been ...

2

I think it's broadly a good idea; but as you've asked specifically for the downsides, here you are: Having a steadily increasing carbon tax can actually accelerate the rate of investment in fossil fuel extraction, thus strengthening that lobby. That's because, with forward visibility of higher future carbon prices, it's better to extract now than in a ...

1

Two things: The price reduction on the polluting good helps consumers of the polluting good, but also hurts producers of the polluting good. This results in less output and, in the extreme, market exit by the least-efficient polluting firms. A full analysis would be needed to show which effect wins in the end as far as overall emissions go. This is ...

1

Your intuition is correct, actually switching from dirty good to clean good will also increase demand for clean good so price there might increase as well. However, this does not mean doing some voluntary change could not help as it also depends on how the quantity demanded changes with price (elasticity of demand). So switching is not necessarily unhelpful. ...

Only top voted, non community-wiki answers of a minimum length are eligible