He believes the Stern Report:
Still, some suggest that because we are not certain about how bad global warming will be, we should do little or nothing. To me, uncertainty should make us act more resolutely today, not less. As one scientist friend puts it: if you are driving on a mountain road, approaching a cliff, in a car whose brakes may fail, and a fog bank rolls in, should you drive more or less cautiously?[...]
To an economist, the problem is obvious: polluters are not paying the full costs of the damage they cause. Pollution is a global externality of enormous proportions. The advanced countries might mean Bangladesh and the disappearing island states no harm, but no war could be more devastating.
A global externality can best be dealt with by a globally agreed tax rate. This does not mean an increase in overall taxation, but simply a substitution in each country of a pollution (carbon) tax for some current taxes. It makes much more sense to tax things that are bad, like pollution, than things that are good, like savings and work.
Although President George W. Bush says he believes in markets, in this case he has called for voluntary action. But it makes far more sense to use the force of markets – the power of incentives – than to rely on goodwill, especially when it comes to oil companies that regard their sole objective as maximizing profits, regardless of the cost to others.
Stiglitz's "globally agreed tax rate" strikes me as a bit wishful -- first, assume a can opener. Nor do I quite understand how a carbon tax would work. Assuming you're replacing other taxes with it, you'll need revenue neutrality (or enhancement) for the country to have a strong financial foundation. But since the carbon tax disincentivizes carbon use, the tax rate will need to be raised just about daily as fuel usage declines. It all seems rather dubious. I tend to prefer the institution of a supplementary carbon tax, as Boulder has done, though it has to be structured non-regressively. And, in any case, all this carbon tax talk is just a lot of having a hammer and making everything a nail: Until we engage in the actual infrastructure work needed to make a non-carbon economy possible, we're taking half measures to solve a more than full problem.
