In a significant shift in stance, Exxon's chief executive, Rex Tillerson, told an audience in Washington that he considered a tax to be a fairer route to curbing emissions than a cap-and-trade system of pollution allocations.
"As a businessman it is hard to speak favourably about any new tax," said Tillerson. "But a carbon tax strikes me as a more direct, a more transparent and a more effective approach."
He must have been reading this guy.
Gregory Mankiw is a professor at Harvard University and a world-renowned economist. He was chairman of U.S. President George W. Bush's Council of Economic Advisers and adviser to Mitt Romney's campaign for the Republican presidential nomination. Mankiw definitely understands how markets function and he, too, prefers market solutions to public policy problems....
But Gregory Mankiw suggested something considerably different when I called him at his Harvard office. Gas should be taxed much more, he said. So should lots of other energy-related products. But be sure to off-set those taxes with cuts to income and other taxes.
His reasoning is straight out of Economics 101. It starts with "externalities."
Take a Sunday drive and your car emits various gases, including carbon dioxide. This adds to the rising atmospheric concentrations of carbon dioxide that are the principal cause of climate change. But do you pay for having contributed to the flooding of Bangladesh? No, you don't. That is an externality: A cost suffered by someone other than the responsible party.
Taxing people to ensure they pay for the external costs they impose on others is fair, but fairness is more the bailiwick of philosophers than economists. What economists care about is the efficient allocation of resources, which markets do wonderfully -- except when there are externalities involved. So making people pay for externalities improves market efficiency.
But this could be a temporary lapse.
Except: Exxon Mobil Corp (XOM.N) is concerned that Australia's proposed carbon-trading regime will lead to unstable pricing and favours a revenue-neutral carbon tax, the head of the oil major's Australian unit said on Friday.
"It's important to understand that allowing the cost of carbon to be determined by traders on a carbon exchange carries the potential to make carbon costs inherently unstable," Exxon Mobil Australia Chairman John Dashwood told a conference.
But that is just Australia, right?
Dion is too classy. So let me do it for him.
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