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Tax to Pay Externalities by Zero Externalities

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Climate Colab

Aug 5, 2014


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As you admit, "mitigation costs would be much harder to assess." Much. That kind of calculation would add complexity when the political imperative is to reduce complexity. Also, I thought the proposal was a solid description of the need for a clear calculation of marginal harm from the next ton of CO2, but then you added this: "To be fair, we should find ways to tax those who have benefited from past pollution." Pricing legacy costs would undercut the economic efficiency argument that I thought you were making. The idea of a carbon tax that rises over time until emissions are reduced to an acceptable level is commonplace. The author simply posits that such a tax should be enacted. Providing carbon tax revenues to the generators "to pay the cost of reducing and eventually eliminating the carbon emissions" is one possible approach.

Daniel Laliberte

Aug 10, 2014


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Thanks for your comments. I look forward to working with other contributors My thinking regarding mitigation costs BEYOND the cost to remove carbon added to the environment is that there would typically be no need to consider the complexity of determining these additional costs because of the following: 1. The choice to pay long-term mitigation costs rather than short-term removal of carbon pollution would almost always be avoided because the long-term mitigation costs will be much higher. 2. Once the excess carbon has been taken care of, there is no need to consider long term mitigation costs. 3. In the rare case that long-term costs need to be considered, we could simplify the problem by just gradually increasing the cost beyond the cost to remove the carbon pollution until it is no longer economically viable. This tax will therefore at least cover the cost of removing the emissions. So I probably should not have mentioned the need to cover any other costs beyond the cost of removing the emissions. I was not proposing any easy clear calculation of the marginal harm from CO2. Rather, I was proposing that removing the excess CO2 should be the primary purpose of the carbon tax, and this cost is relatively easy to calculate. My proposal was not addressing past emissions and those who benefited in the past or continue to benefit, except to mention that we should find ways of addressing that problem as well. Therefore, I don't think it is a fair criticism of what I was proposing to claim I should address that. It might seem reasonable to tax current carbon polluters enough to cover past emissions as well, but why should the last of the carbon polluters pay for all the previous pollution by others? And what happens once everyone stops adding more carbon emissions, but we are still left with the excess carbon from previous emissions? There would no longer be any further carbon emissions to tax, so how do we decide who pays for removing the remaining excess carbon from previous emissions? That's why I believe this would seem to be a different problem, perhaps addressed by levying fines against previous polluters, while they can still pay. My proposal was not merely a carbon tax that rises until emissions are reduced to an acceptable level, which is a general characterization of most proposals. Rather, I was proposing to specifically use the tax revenue to remove the emissions, and so the level of the tax need only rise to the point of paying for removing ALL emissions. That is, the only acceptable level is 0 emissions, and then the tax would rise no further. The novelty of my proposal, compared to all the others I have seen, is that the carbon tax revenue would be tied to paying to remove the carbon emissions. Moreover, I was not proposing that the tax revenues should be given back to the generators of the emissions, mostly because doing so sounds fraught with risk of abuse. Moreover, if the generators of emissions were merely given the tax revenue, which they paid, minus the administrative overhead costs, and they then turn around and use the revenues to remove the emissions, why not just avoid creating the emissions in the first place and thus avoid the tax? Rather, the revenues should probably go to other independent agents who would bid on contracts to remove the emissions. Ensuring compliance, and paying for inspections and redundant watchdog services would be an essential part of the overhead costs that also need to be covered by the tax.