Friday, May 18, 2007

Thoughts on the Pigou Club

Greg Mankiw references two articles that support the “Pigou Club” thinking, which is basically a carbon tax should be levied to encourage “green” behavior and account for the true costs of carbon in the atmosphere.

I agree with this position and am encouraged that economists of Mankiw’s background and expertise support such a plan of action.

I won’t summarize the two articles, but I will highlight a couple of concerns that I have. Nothing I mention here means that I necessarily disagree with any of the points raised in the articles, just that these are things I thought of while I read them.

From Jeffery Sachs quoted in Scientific American:

The key to solving the climate change crisis is technology.

Broadly speaking, I agree with this point. But I do get nervous when someone says there is a single magic bullet solution to any large problem. I’m not sure that is what Sachs means, but to my mind technology and societal behavior change are equally important. True, new technologies could inspire societal behavioral change, I just think we need to be more up-front about that or talk about how to marry the two concepts.

For example, car-pooling is a behavior change, hybrids are a technology innovation; put the two together-- car-pooling in a hybrid—and now you’re really talking!

Sachs also mentioned low or zero emissions through clean coal. I’m far from smart enough to debate him but, is that for real? I should do more research.

The next article was from Fortune. One point made here on ethanol was:

The net effect is close to nil; if you doubt that assessment, check out this recent study by the Canadian government, which found that a 10 percent blend of corn-based ethanol would reduce emissions by about 1 percent.

Again, I’m sure this is true and I have been a little skeptical of the recent craze around ethanol. But to that point, we all know that with any new technology it starts out expensive and inefficient, but as it gains adoption, price goes down and efficiency goes up. So it is consistent to say that ethanol may not be very efficient now, but it is reasonable to assume that as it gains widespread use, its ability to offset emissions will increase.

Greg Mankiw's Blog: Readings for the Pigou Club

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