Monday, March 05, 2007

Good news/bad news on a carbon tax

Respected conservative and liberal economists Tyler Cowen and Brad DeLong agree about the good news: an oil tax will mostly just transfer wealth from low-cost oil producers like Saudi Arabia to the governments that impose the tax. The bad news: because the oil tax will mostly just transfer wealth instead of increasing oil's cost, it will do little reduce carbon emissions.

This sounds mostly correct to me, assuming most oil is produced by low cost producers. You can't always predict the behavior of semi-monopolies like the Saudis though. And the economics is clear that a tax does affect price and presumably emissions in the long-term. The sooner we get started, the sooner we get to the long term.

And then there's the issue of what we can do with the tax revenues to reduce emissions.

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