Economists sometimes get a bad rap – the unfair belief that they worship at the alter of markets above all else, ignoring real problems as a result. In fact, a great deal of contemporary economics is focused on the opposite – understanding the places where markets fail, and helping craft policies that can make up for the markets’ resulting shortcomings.
That thinking is in evidence in this, an open letter signed by 255 Canadian economists arguing for a carbon tax:
One of the few issues on which most economists agree is the need for public policy to protect the environment. Why so much agreement? Because in the absence of policy, individuals generally don’t take the environmental consequences of their actions into account, and the result is “market failure” and excessive levels of pollution. Environmental degradation diminishes the quality of life for all of us. And without a healthy environment, we can’t sustain a healthy economy.
Their missive is realistic about the fact that there will be costs:
Any effective carbon-reduction policy will necessarily entail changing the way we live and do business. All forms of regulation, taxes, or markets for the exchange of emission permits that have a significant impact on greenhouse gas emissions will affect the prices of carbon-intensive goods.
They argue for a carbon tax over a cap-and-trade system because of both price certainty on the tax side and unnecessary complextity on the cap-and-trade side:
With a well-designed carbon tax strategy, the tax will be introduced gradually and increased in pre-announced increments until the environmental target is reached . This provides investors with a degree of certainty that is good for business, and allows consumers to make adjustments knowing what is coming. The exact impact of the price increase on the quantity of carbon emitted can be predicted, although with some margin of error. A carbon tax thus involves choosing price certainty but accepting some uncertainty in total carbon emissions.
(h/t Greg Mankiw)