A Carbon Tax Rationale

The Economist is stepping up to the plate, calling for a carbon tax. I have included their entire text  from their Chief Economist, Simon Baptist, below.

 "Climate change has been on my mind this week, as I'm just back from a trip to the UAE (which has incongruous plans to be a sustainability hotspot) and, of course, we have the COP21 meeting kicking off in Paris. Hopes at COP21 are high that a significant agreement will be reached. It is notable that the discussion is much less about what cuts to emissions each country should make and more about the mechanisms for collective progress and monitoring. Even among those with formal commitments under Kyoto, it was really only the EU that took them seriously. The US never ratified, for example, and Canada withdrew. Today three key barriers are that major emerging market emitters, like India, object to taking much action at all, others, like China, are happier to take action but object to international monitoring, while wealthy countries are reluctant to allocate large sums of money in compensation for historic emissions.

 The Kyoto process showed that collective agreements on targets is difficult. Progress has to be based on action that makes sense from the perspective of each country alone. That's why I think a carbon tax is by far the best solution. Countries already have taxes, so it's clearly in the bounds of national competencies. It can be revenue-neutral, and other taxes can be cut in response. Once governments get used to revenue, they also tend to want to keep it. It's also pretty easy for emerging economies to implement, as the upstream energy sector is pretty concentrated and already regulated. Unfortunately, emissions trading schemes seem to be dominating current policy responses, largely because it was the chosen tool of the EU. Nonetheless, climate policy will be important for decades to come, so there is plenty of time for policy to change."



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