Does a Carbon Tax Reduce CO 2 Emissions? Evidence From British Columbia

From Felix Pretis:

Using difference-in-differences and a novel break-detection approach I show that the introduction of a carbon tax has not ‘yet’ led to a significant reduction in aggregate CO2 emissions in British Columbia, Canada. Despite the lack of detectable aggregate effect, there are heterogeneous emission reductions across sectors: the tax led to a reduction in emissions from transportation incl. personal vehicles (-5%), buildings (-5%), waste processing (-3%), and light manufacturing, construction and forestry (-11%). Introducing a new method to assess policy based on breaks in difference-in-differences fixed effect panel models, I demonstrate that neither the carbon tax, nor the carbon price and emissions trading schemes introduced in other Canadian provinces are detected as significant interventions in aggregate emissions. The absence of significant aggregate reductions in emissions is consistent with existing evidence that current carbon taxes (and prices) are too low to be effective.

Since current carbon taxes are already not so popular, I don’t take this as especially good news.  For the pointer I thank Warren Smith.

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California just beat back gas tax repeal, 54% to 46%! And all of the extra revenue is funding road repairs and grade separations in my hometown on the Peninsula... I'm not sure it's as unpopular as you think.

Gas tax isn't a carbon tax. Just ask the lobbyists at Tesla.

Well, it started at the Federal level in 1932 so I'd be pretty surprised if it was a carbon tax.

Let's not be naïve. The purpose of a carbon tax is to take money from the people and give it to the elite in power. It has nothing to do with the fake climate crisis. No one cars if it cuts carbon they only care about the money. Wake up, the left has turned communist on you.

'Wake up, the left has turned communist on you.'

And the sheeple just say 'baaah.'

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"Wake up, the left has turned communist on you."

Communist is the wrong term. But yes the Left are watermelon's. Look no further than the Green New Deal, which is chock full of social programs that have nothing to do with the environment.

That being said, the Left wanting to use every tax dollar they can get doesn't disprove the climate crisis.

On the other hand, the Left's reflexive antagonism of nuclear power and refusal to use it to mitigate carbon releases does prove that they don't believe future AGW is worse than the expansion of nuclear power.

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So, are you talking about the 1932 gasoline tax, or is it just taxes with the word "carbon" in them that have this effect? If it's the former, do you think Alexander Hamilton went "full communist" when the Whiskey tax was introduced in 1791 or do you think he was only about 90% communist?

We are talking about the hopeless rubes who think the point of a carbon tax is to reduce CO2 and the charlatans who sell these taxes to the rubes on grounds of saving the planet. Nothing to do with Hamilton. Try a little harder to keep up.

I hereby predict that "carbon taxes" shall remain just as popular with or without any effect on CO2. Even if a BC "carbon tax" entirely eliminated CO2 production in BC, the net effect on "global warming" would be negligible. The fact that the effect remains negligible now that rubes are paying will change nothing.

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It's also possible that financial disincentives need to be in place for a long time in order to affect replacement cycles for business equipment.

Even low rates of tax can skew the numbers enough to prompt business owners to seek out newer, more efficient production technology when old equipment becomes uneconomic to maintain.

A lot of this will effect large capital equipment with 10+ year life spans. The tax went into effect 11 months ago. So, you won't be able to get a full accounting for a decade.

Oops, I'm wrong. A $35 per ton tax was implemented last year. The carbon tax has been in effect since 2008. So, yes, they should have seen effects on the capital stock by now.

https://www2.gov.bc.ca/gov/content/environment/climate-change/planning-and-action/carbon-tax

Hilarious. So confident at 9:45 am, so wrong at 9:53 am.

The carbon tax has had exactly the effect its sponsors intended. The same for the recent increase, the same for the next increase.

And I love the comments regarding 10 year capital goods cycles. Don't you guys know that life on earth will become extinct within the next 12 years if we fail to hold CO2 levels down to 350 ppm? In fact, right now, the temperature of the earth's surface has already become uninhabitable and we all now live in isolated communities underground in abandoned mine shafts. The science is settled.

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I wonder what they spent the carbon tax revenue on? Maybe it was just diverted to other emission generators? More driving or steak or AC?

it is returned quarterly as a cheque to the residents of BC in a progressive 'climate action tax credit'

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Indeed, from the article:

"The tax is designed to be revenue-neutral, making it a popular scheme with the public (Peet and Harrington 2012), with tax revenue returned to the public through cuts to individual income taxes and a dividend."

That's why the whole dividend idea is misguided. The whole point is to make carbon more expensive.

Rational economic agents would make lifestyle changes to reduce tax incidence on themselves, while still reaping that check. Making it neutral in aggregate but personally beneficial.

And most people aren't rational, at least in a traditional economic sense.

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Doesn’t look like it’s actually revenue neutral at all.

A time to tax, a time to credit, a time to seek rents from the Canadian government, and a time to collect rents from the taxpayer. All is vanity:

“But a closer look at the details shows that rather than cutting other tax rates, the government has tinkered with boutique measures targeted at specific subgroups of the population through special interest tax deductions like Children's Fitness Credit and Children's Art Credit; Small Business Venture Capital Credit; Industrial Property Tax Credits and a School Property Tax Reduction for Farm Land. ”

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https://www.cranbrooktownsman.com/news/kootenay-east-mla-reacts-to-b-c-budget/

Shypitka lamented the loss of the revenue-neutral aspect of the former BC Liberal government’s carbon tax, which was returned to the pockets of B.C. taxpayers. Now, he says the government is spending $900 million on CleanBC, while the carbon tax is set to bring in revenues of $1.7 billion next fiscal year, with more to come as the tax increases over the next three years.

He also questioned the appeal of reducing tolls and offering rebates for electric vehicles in the context of the East Kootenay and other rural parts of the province.

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I looked at revenue neutrality, British Columbia had it in 2017, but it is long gone, the carbon taxes are funneled into government funded co2 spewing projects.

It is the same a New Green Deal, NGD people can spew all the extra CO2 they want as long as they call ourselves green and have no children.

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Carbon tax on forestry? Isn't that a carbon negative industry?

'Isn't that a carbon negative industry?'

No - cutting down, transporting, and transforming trees into lumber is not even carbon neutral. Burning trees for heat may be essentially carbon neutral when done on a typical German scale - the people of a town use wood from the town's local forest, which is managed over a long term sustainable basis. That is, the amount cut in a year has to be balanced by the amount that the forest grew - which is not hard, as such forests are generally 'overplanted,' so that as the trees grow, the excess is removed as firewood to allow the remaining trees more room to grow - the basic idea behind a well managed wood lot. Of course, people do use chainsaws and tractors or cars with trailers to move their firewood a couple of miles, so it is not completely carbon neutral in the strictest sense.

As for cutting trees in BC, turning them into lumber, then shipping pellets made from sawdust to Europe? Crazy idea that may provide the same benefit in terms of CO2 that corn ethanol does - that is, from basically zero to a minor benefit that would be overshadowed by simply increasing fuel efficiency. Burning wood that is left over from the BC lumber industry in BC makes considerably more sense, of course.

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British Columbia's electricity supply is almost entirely renewable and it is in generation where large and rapid reductions occur when a carbon price is introduced. Australia had a carbon price of around $17 US for 2 years and in the electricity sector emissions intensity fell by about 6% while total emissions from electricity generation fell by about 15%.

Our carbon price didn't even apply to gasoline and diesel and we weren't too worried because we knew the effect would not have been very significant.

Once the Abbott government removed the carbon price they raised the tax on gasoline and diesel to make up for some of the lost revenue, so I guess they did get a carbon price related tax hike.

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Something doesn’t obviously add up here: significant decreases in the largest and third-largest industries (transportation and buildings), plus an insignificant increase in the second-largest industry (oil/gas), and decreases in all the smaller remaining categories, would usually add up to a significant decrease.

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Of course carbon taxes are unpopular; all taxes are unpopular except taxes paid by somebody else. Other commenters note that the BC carbon tax is returned to taxpayers (as opposed to being treated as a tax increase and spent by BC). Isn't that counter-productive (if the goal is to reduce carbon emissions)? No pain, no gain. Tax increases (sticks) can modify behavior and tax breaks (carrots) can modify behavior, but an equal amount of each would seem to cancel the behavior modification goal.

Who told you all taxes are unpopular?

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You might want to follow an econ 101 class at some point

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Imagine a 100% tax is applied to apples, but the revenue from that tax is divided up between all citizens and you get a share. Would you use that money to buy just as many apples as you did before the tax, or would you buy fewer apples and more of other fruit since apples are now much more expensive?

Depends on the timing. If the refund is a once a year lump sum people will treat it as a windfall. Some if it may be put into savings some will be spent on something discretionary or used to pay down existing debt. Meanwhile weekly budgets should adjust to the lower weekly income occasioned by the tax.

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Actually what it shows is that carbon use is not very elastic. If that is the case, the optimal Pigou tax is also low. In general the more inelastic the supply or demand for an item the lower the theoretically optimum Pigou tax.

Isn't there evidence that people do use less energy when the price goes up for other reasons and stays high, as with gasolinewhen it was over three dollars a gallon some years back? The short term effect is small to non-existent but long term people do change their driving habits and buy more fuel efficient cars. This is similar to the manner in which employment doesn't change much immediately when the minimum wage increases, but there are long term changes as employers adjust.

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From the article:

"A few exceptions to the tax are notable, no tax is applied to fuel exported from the taxed region, fuel used by shipping and air-travel to or from the region, and greenhouse operations in agriculture"

The CO2 emissions of the oil industry and agriculture are not taxed. Then the author presents his results on figure 4 where we can see that after the tax started on 2008 the emissions of oil&gas and agriculture have gone up, all other down. Aggregate emissions stay constant.

Then, in the author words on section 4.3 "Since the export of fuel is exempt from the carbon tax, it is unsurprising that the oil- and gas-producing sector has not seen significant reductions in emissions in response to the introduction of the carbon tax. Second, the sample of treated post-tax observations is small. There are only 9 years of emissions data available following the introduction of the tax, thus any the aggregate effect may simply be drowned out by the variability of emissions."

When the author writes his conclusions he forgets his own remarks about tax exemptions and data variability. There is a huge divide between the analysis results and the conclusions because he results show: (i) the tax effectively reduced transportation emissions, and (ii) tax exempt industries have not reacted to the C02 tax.

So, the CO2 tax works, the overall CO2 taxation policy fails because of the exemptions to oil and agriculture. It's not a structural failure but an implementation one.

Good catch.

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Are the sectors with improvements due to the tax or other factors? Take housing. New house are smaller (fewer kids and affordability) and substantially more energy efficient ( built to the Canadian building codes). Transportation again the availability of vehicles that consume less fuel. The Fraser Valley has had transportation fuel surcharges to fund transit for at least a decade longer than the carbon tax. There have been major transit projects in Vancouver and environs that have made it possible to commute using that system that have come on line since the tax was implemented.

The biggest driver of efficiency upgrades has been the cost of electricity. It is cheaper to heat your house or building with natural gas than electricity.

The baseline energy consuming products that are commodity prices such as boilers, a/c, windows, transport trucks, etc. use less energy than a decade ago not because of the bc carbon tax but the availability on the market and the moving of manufacturing to less regulated jurisdictions.

All this is true, but it's highly probable that the Carbon Tax was a factor. It's basic economics that raising the price of something changes the demand.

All else being equal, maybe. But all else isn't equal.

A story. I remember when the tax was implemented. That summer gas prices were very high and the traffic was noticeably lower. Everyone got a check for their carbon tax rebate just as it was implemented. The gas stations were full where people were using the money to fill their tanks and traffic got back to normal.

The tax isn't enough to drive decisions. The costs end up being reflected in increases of food costs and other services like that.

I suggest that a carbon tax won't affect carbon emissions but will effect obesity rates as food prices reflect the tax.

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The public generally supports high taxes on cigarettes and alcohol because both products are deadly. Taxes on carbon, not so much, even though carbon emissions may destroy the planet and everyone on it. The tobacco and alcohol industries have been effectively demonized, but not the carbon industries. Would a public university accept large donations from the tobacco industry? Probably not. As Axa points out, the carbon tax in BC seems like it was designed to fail, so even "supporters" of the carbon tax in BC don't seem to believe the urgency of reducing carbon emissions. Is it necessary to demonize the carbon industry before policies to seriously reduce emissions will be adopted?

"even though carbon emissions may destroy the planet and everyone on it."

Sigh, you need to understand better what you are talking about. AGW won't destroy the planet, everyone on it or even human civilization.

"There is a remote possibility that run away global warming will be the thing that gets us, our particular solution to the Drake Equation. I just don't care." - Humanity

I would place the likelihood of a major catastrophic die off of humans cause by starvation and deprivation from the vigorous implementation of green policies higher than something similar from global warming.

The Green new deal if implemented would do that.

I bet we could collect a greatest hits of bad arguments on this page.

-10, Huffle_mouse: For failing to realize he has posted some of the worst arguments on the page. For example, in this specific thread he hasn't made any actual logical rebuttals.

Oh oh, did the Rat just use "msgking's" naming system?

Either way you seem to be in it for a surface reading at best, and a dog's ability to follow a conversation.

derek made a generic "solutions are worse than problems" argument, because his political foes are the only ones offering solutions.

Msgkings is JK Rowling?

With all due respect to JWatts and Msgkings, it’s the Hogwarts rating system. Which is good, because it’s comically dismissive.

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Actually, I thought it was Hmmm's.

And one certainly can easily find it comically easy to dismiss.

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Your ignorance of how the economy works is the most remarkable. Everything we do depends on fossil fuels. There is one alternative that could provide amounts necessary, and it is studiously avoided in that document and almost every other that broaches the subject, nuclear. Food production, distribution, storage and preservation of food produces substantial amounts of greenhouse gasses. A disruption by mandating a 10 year change of that whole system would look like the Homodor.

If you don't know what that was, read about it. Education is good.

This is a very tough problem, and ultimately technical. How to refrigerate foods with less energy and without green house chemicals is something that is going to take 40 years to solve and implement. How to grow food in quantity without fossil fuels as well. How to distribute food in quantity as done now is very complicated and remarkably efficient, and a stupid rule change would simply mean that it doesn't happen except to places where people can afford it.

How long would your wonderful schemes last if 40% of the population can't afford to eat and the implementors are fat and happy?

"How to refrigerate foods with less energy and without green house chemicals is something that is going to take 40 years to solve and implement. "

No, it's something that's a matter of ongoing. But to your point the GND would probably do far more harm than good.

https://phys.org/news/2019-03-team-artificial-muscles-air-conditioner.html

"How long would your wonderful schemes last if 40% of the population can't afford to eat and the implementors are fat and happy?"

The Venezuelan Model

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Transformational leftist schemes killed millions in the 20th Century. But don't worry, you can trust the ones we've come up with for the 21st.

Yes, let's collect that one too. "Environmentalism is the same as godless communism!"

Clearly not what I said, but collect as you will.

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" ... don't seem to believe the urgency of reducing carbon emissions ..."

No one except a tiny number of fanatics appears to actually believe this. The sweet spot is around "cost to me too little to notice, no day-to-day inconvenience".

Here's some survey data on just how little people are willing to pay:

"But the AP survey also showed that Americans don’t want to pay very much to fight climate change. A $1 per month fee was favored by 57 percent of those surveyed. However, if the monthly charge increased to $10 a month, just 28 percent would be supportive, while 68 percent would be opposed."

https://www.nbcnews.com/news/us-news/more-americans-believe-global-warming-they-won-t-pay-much-n962001

It's interesting that you use "fanatics" to describe the group that are willing to pay small personal costs to help others.

But certainly it reinforces my observation that as a species we just don't care. So "plans" become deck chairs. The fate of the ship, TBD.

The fanatics are not those "willing to pay a small personal cost" (i.e. $20 a year).

The fanatics are those who demand the urgent (and mandatory) restructuring of the economy and society. I'm sure that at least some of them really do honestly believe the more apocalyptic scenarios.

And for a larger group, its just a coincidence that this restructuring of the economy and society falls conveniently along the lines that they would prefer even absent any climate concerns.

I'd personally rather see the investment go into hardening and increasing the robustness of the electrical grid.

This x 1000.

Somehow there’s a nuclear power solution with proven technology, but instead the answer anonymous and friends come up with is a $9.3 trillion a year in tax and spending program to fundamentally reengineer society.

Yes, fanatic is a good word for it.

Being against Nuclear because it cost too much I understand. Or even being against it for what it cost versus the risk it entails, I also understand.

However, if you genuinely believe that humanity is under an existential threat and yet you still refuse to advocate for an expansion of nuclear power, then you are a fanatic!

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A long time ago I told skeptics (back in the days when they questioned warming itself using heat island effects etc) that the strongest "anti" position to take was actually acceptance. "Sure the planet is warming, sure humans are responsible, sure there will be negative effects. I just don't care."

20 years later I think that "best worst" argument has prevailed, even if nobody wants to admit it.

That includes among economists who "support" a carbon tax and then catch their next flight.

You can support a tax on X while still purchasing X.

....obviously.

I would have said so, but for those 20 years "skeptics" have been demanding that believers be first movers. The "worst worst" argument has been "if you really believe, you (or Al Gore) would .. whatever."

It's strange in a way, because the same group that would cry "virtue signalling" at the sight of every Prius has always demanded more signalling, from someone else, rather than an effective policy.

As far as the economists, I think they thought they could just name their preferred policy, and then say "I gave at the office, I gotta run to catch my jet."

I gave at the office. I bought a Subaru instead of a Raptor.

We are all blameless because we all set low bars for ourselves. It just isn't a priority.

Or we could say, “I anonymously posted on an internet blog, and I don’t care that the huge server farms supporting the internet consume massive amounts of energy, the production of which is spewing massive carbon emissions.” Yes, this is “the pot calling the kettle black.”

It would have been, without the closing.

"We are all blameless because we all set low bars for ourselves. It just isn't a priority."

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I wish the abstract would have explained what sectors have begun emitting more co2. If it is just coincidence that, say, the mining industry began thriving and its increased emissions swamped the decreased emissions of other industries, then we can't really say that the aggregate effect was nil.

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The way I read this is "I found a significant effect, but I'm going to go right ahead and say it wasn't significant anyway. Because I just hate market based solutions."

I could be biased. I didn't read the whole paper. This is just my mood-affiliated immediate reaction.

Getting into the speculation game, I don't think the article author hate market solutions.

Instead he did not wanted to raise his finger and point to the natural gas industry which has grown to 25% of Canada's NG production.

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Just to add a little science to all of the idiocy on both sides of the AGW debate. Here iare the curren tpessimistic projection for 2100 assuming the status quo:

"In one pessimistic scenario, under which greenhouse gas emissions continue to rise until 2100, temperatures could rise by 4.8C (8.6F) against 4.3C (7.7F) estimated by a U.N. panel of experts in 2014, they said."

A 4 to 5C degree change in Earth's average temperature will not destroy human civilization.

Furthermore the pessimistic scenario assumes that there's no changes in the underlying costs. It's highly likely that batteries, solar cells, wind turbines, etc will all be substantially cheaper well before the year 2100. Indeed, if the past two decades trends were to carry forward at least another decade, this whole argument will be moot by 2030.

The issue is not warmer air but higher sea level. In some cases land value will not appreciate anymore, even go down. Trade and hedge carefully. Friends don't let friends buy seafront property =)

"In some cases land value will not appreciate anymore, even go down."

This is true, but very few people both actually read the science and have a working knowledge of economics. The scale for that is long. As in longer than the United States has been a country long.

IPCC report:

"The few available process-based models that go beyond 2100 indicate global mean sea level rise above the pre-industrial level to be less than 1 m by 2300 for greenhouse gas concentrations that peak and decline and remain below 500 ppm .. For a radiative forcing that corresponds to above 700 ppm CO2-eq but below 1500 ppm, as in the scenario RCP8.5, the projected rise is 1 m to more than 3 m.

Sea level rise of 1 to 3 m per degree of warming is projected if the warming is sustained for several millennia. "

So, the worst case scenario is a rise of 10 foot over the next 300 years.

It's not science, it's engineering.

5 or 10 cm of sea level rise may look harmless. However, lots of coastlines are composed of erodible sand or silt. Coastal erosion can be quite different even with a few cm rise. One day the coastline is there, the next morning is gone.

Of course, coastal engineers can fix this kind of problems as heart surgeons can fix blocked arteries. But, why not prevent worries in first place?

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https://www.fresnobee.com/news/state/california/article227419534.html#storylink=indep
Cities will lose gas tax money if they don’t meet housing goals under Gavin Newsom’s plan

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Carbon taxes do not reduce global warming, Tyler bought into the fiction hook line and sinker. It has been a fraud since the beginning, even Kevin Drum figured that out. Government redistributes energy, folks, Tyler Cowen get a clue.

We know how to reduce CO2, that is the problem, almost 100% of us will not choose to remove CO2 pollution if our precious government goodie is threatened. This has been clear for 50 years, going way back to Diane Feinstein and the Boomers doing the same fake New Green in the 70s, and the result was environmentalists melting ice unnecessarily.

Once agreen environmentalist use carbon taxes to fund inefficient programs, the progams never go away, government continues to melt ice unnecessarily.

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The trouble with the Canadian carbon tax schemes is that they are accompanied by policies to mitigate the horribly regressive nature of energy taxes. The result is the subsidy of high intensity C02 consumption households and little if any change in overall consumption. Wealthier households are more likely to already own newer, more efficient equipment and therefore be less exposed to these taxes than average or poorer households (who are given refunds or exemptions). I shudder to imagine the economic impact of the level of this tax that would be required to change the behavior of wealthy households, especially given that some 40% of Canadian households are within $100/mo of not being able to pay their bills.

A more sensible policy would be to make more C02 reducing products cheaper. For example, eliminating the surtaxes on high octane fuels in these same provinces would encourage people to purchase cars with smaller, higher performance, cleaner, more efficient engines.

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The US has a MASSIVE long term budget deficit.

We're going to have to raise taxes in some way to cover the costs of our exploding entitlements programs.

If we're going to tax something, why not tax pollution?

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I thought that taxes that do NOT change behavior are the best? Keep raising them. Either they will reduce carbon output or let us repeal the income tax and all other taxes and make the economy more efficient.

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Hal Harvey suggests that policies of this sort only work if they are carefully guarded against loopholes--if Axa is right then there's your answer. But maybe Nordhaus's gambit won't work and taxing consumption is insufficient. If so, wasn't it Schelling's idea to regulate the source?

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Is it likely that a carbon tax would do more good in a place that didn't already have so much hydroelectric power?

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A carbon tax doesn’t need to reduce emissions by people, it only needs to generate revenue that can be used to offset the negative environmental effects of those emissions. Many (environmentally leaning) economists see emitting carbon and not paying for it as a simple way of not paying for the full product being delivered, passing the cost on to the common collective. A carbon tax could offset this.

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