The Economist On Carbon Taxes  

The Economist is pushing for carbon taxes (or cap and trade systems) instead of government mandated green infrastructure projects - Green schemes. Given that right wing governments in Australia and the US did nothing to implemeent a market based system to deal with global warming over the past decade, its a bit late to be whingeing now - they had their chance to do it properly and now we'll get a planned and/or lobbyist driven solution instead.

ONE industry that seems unaffected by the economic downturn is the unearthing of gloomy news about the environment. On January 30th, a group of 150 marine scientists issued what they called the “Monaco Declaration”, warning that the acidity of the world’s oceans was rising 100 times faster than the natural rate, thanks to increasing levels of carbon dioxide absorbed from the atmosphere. At that rate, they predict, most coral reefs will be gone by 2050.

A few days before, a study had revealed that even Antarctica was warming; previous investigations had suggested that parts of it might have been getting colder. There were also reports that moths were abandoning the ever-steamier lowland jungles of Borneo and heading for higher (and cooler) ground, that the lifespan of trees in America was decreasing, that erosion was set to increase in Louisiana and Florida thanks to rising sea levels, and so on.
AFP

Happily, another surprisingly resilient business is the manufacture of worthy pledges about climate change. Barack Obama, America’s new president, gladdened green spirits last week when he gave California his blessing to press ahead with fierce restrictions on greenhouse-gas emissions from cars. But that, Mr Obama said, was just “a down payment” on his grander ambitions for the atmosphere. He has repeatedly promised to introduce laws to stem America’s greenhouse-gas emissions, and to push for a new global pact on climate change to replace the Kyoto Protocol.

The European Union, which never likes to be left out on the subject of global warming, unveiled some new ideas of its own. The rich world needs a global carbon-trading scheme, it said, appealing to Mr Obama to sign on. It also reiterated its offer to cut its own emissions to 30% below 1990 levels, should such an arrangement be put in place.

Both the EU and Mr Obama have ideas about using clean-energy investments as a form of economic stimulus for the world’s flagging economy. Mr Obama wants to subsidise updates to the electric grid, the commercialisation of electric cars and the weather-proofing of buildings, to name just a few of his pet causes. The EU’s bureaucrats last week identified carbon capture and storage and offshore wind farms as worthy of immediate slugs of cash. The British government, meanwhile, drew up a shortlist of five different schemes it might fund in the hope of extracting tidal power from the estuary of the Severn, the country’s biggest river. ...

One way to figure out the optimal suite of mitigation measures is to have bureaucrats do cost-benefit analyses, construct models and tell us all what to do. In some sense, that is what is happening with the official endorsement of unproven technologies such as carbon capture and tidal power.

The alternative is to let markets to find the way forward, through a carbon-trading scheme or a carbon tax. At least in theory, the profit motive should help entrepreneurs figure out the cheapest ways of cutting emissions, and thus save us all money.

Clearly, The Economist is keener on the latter strategy, as Mr Obama and the EU seem to be. He says he wants to introduce a carbon-trading scheme in America; the EU already has one. Yet both America and Europe’s officials seem to miss the point of the system they espouse.

Policies such as fencing off tailpipe emissions from cars for special treatment or giving hand-outs to carbon capture schemes do not help the effort to slow global warming as cheaply as possible; they hinder it. They steer investment in particular directions, distorting the choices the markets might have made if left to their own devices. Spending more than is necessary on a particular technology, in turn, increases the cost of cutting emissions overall. In order to look like they are doing something about global warming, in other words, the governments of Europe and America are making things worse. For those who worry about the atmosphere, that might be the worst news of all.