Carbon taxes in the NYT
Posted March 27, 2008on:
Denmark, Finland, Norway and Sweden have had carbon taxes in place since the 1990s, but the tax has not led to large declines in emissions in most of these countries… [T]he insight they provide is that if reducing emissions is the goal, then a carbon tax is a tax you want to impose but never collect.
There may be some truth in that: if the regulator’s goal is to maximise revenues, rather than maximise welfare, then their tax level is unlikely to be optimal. I guess Prasad is really saying that the problem is with regulators who don’t act in the best interests of the community that they’re chosen to serve. However, I don’t really see why any regulatory scheme is less open to failure as a result of incompetent or misguided implementation by the regulator.
Secondly, if emissions rose as a result of the tax when they were supposed to decrease, then the tax was too low. It’s not the fault of the tax that it was set too low, and it’s ridiculous to blame the concept of carbon taxes for emissions increases. If an emissions trading system has a cap that’s too high and is set up through cronyism rather auctions then it’ll be a bad system, too. We wouldn’t blame the idea of carbon trading for its failure, though, and nor should we condemn taxes based on poorly designed taxation schemes.