Tuesday, September 15, 2009

Even for someone as classy as Dion

There must be an urge to say I told you so. I first read this during the coalition conniption and didn't have time to blog on it.

The world's biggest oil company, Exxon Mobil, has softened its hardline position on climate change by throwing its weight behind a tax on carbon emissions.

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?

Nicolas Sarkozy today vowed to lead the fight to "save the human race" from global warming, launching a carbon tax to encourage French families and industry to cut their use of fossil fuels.

From 2010, France will become the biggest European economy to levy a carbon tax, following other successful schemes introduced by Nordic countries in the 1990s.

Dion is too classy. So let me do it for him.

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The Rational Number said...

On the one hand this could be misdirection. When cap & trade is proposed, favour a carbon tax; when the carbon tax is promoted, favour c&t.

However, I'll believe Exxon this time. I think they really would prefer a carbon tax to c&t (and so do I). I wrote about it before.


Either c&t or a carbon tax can be introduced with no teeth. A very generous cap reduces demand for carbon credits by increasing supply, keeping the price of carbon credits low and reducing their deterrence. A very low tax rate, or having lots of exemptions to a carbon tax reduces its effectiveness.

I suspect big oil would support of which ever scheme favours their profits.

Oemissions said...

If we have to go either or: its carbon tax all the way for me. But.... it needs to be a generous one... like triple the gas tax and be sre it goes for better and innovative transit.
I suffer daily, as a pedestrian, cyclist, transit user from all that noise, exhaust,and filth from automobiles.It is very very stressful. Somedays I can't stand even the scritch of another ignition key turning on.
And then I have to do extra laundry and house cleaning from all the dust and dirt that gets in from all the passsing automobiles and look at the streets.Filth.
And all those killed and injured and extra hopital costs.