A Sensible Carbon Tax

Further proof that the Trudeau government's minuscule carbon tax barely rises above the level of greenwashing.

An article in the MIT Technology review indicates that carbon taxes can work - if they're high enough, at least $100 USD per ton.

A new economic analysis flips some of the traditional thinking about a carbon tax, concluding that the price should fall rather than rise in the decades ahead. It should also start far higher than many previous studies and policy proposals suggested. 

Notably, a plan put forth by former US secretaries of state James Baker and George Shultz in 2017 proposed a carbon fee that would start at $40 a ton and increase every year at 5% above inflation, in line with conventional views rooted in some of the earliest and most influential climate-economy models. 

But the new model, published September 1 in the Proceedings of the National Academy of Sciences, concludes it would be much more effective to start with a price well above $100. That tax would tick up a bit further in the first decade or so, before slowly sliding downward for the next few centuries.

In basic terms, the so-called EZ-Climate model attempts to merge the tools of financial economics into climate economics, which ends up placing a higher estimated cost on uncertainty—and higher value on averting risks. 

So the model finds a few things likely happen over time. 

The higher the price is at the start, the more rapidly nations and businesses will develop and deploy cleaner ways of doing things, says Gernot Wagner, an author of the paper and associate professor at New York University’s Department of Environmental Studies. 

That also means the price on carbon can start to decline sooner, as more and more of the economy shifts to systems and sources that no longer pump out emissions. But in addition, the world will simply learn more about the exact impacts of climate change, and what it takes to address them. 

“Uncertainty resolves itself over time,” Wagner said in an email, so we no longer have to pay a higher price for it.