12/31/2019

Troubles in the Economists’ Case for a Carbon Tax

"As economist Bryan Caplan writes on the case for correcting externalities, “most people are not perfectly selfish, and it is usually feasible to charge consumers for a fraction of the benefit they receive” — as we demonstrably do in the case of carbon emissions; fossil fuels, except in countries like Saudi Arabia or the Emirates, usually don’t come cheap. The problem that carbon taxes try to address is one of a mild overproduction of emissions compared to an idealized situation where the social cost of carbon emissions on others could be fully internalized. 

But how could we possibly know where that idealized situation is?

Even accepting the externality argument, we are instantly confronted with two obvious problems: First, we don’t know how far apart these impressive-looking textbook curves of social and private benefit are. There is simply no way to adequately measure the cost of an externality (never mind that costs are individual and subjective rather than collective and observable). If we overcorrect, we are harming ourselves for no good reason."