Common Tragedies

Thoughts on Environmental Economics

Who vets NYTimes op-eds?

Posted by Rich Sweeney on March 25, 2008

Today’s piece on carbon taxes by Monica Prasad was pretty weak. Her argument is that we should tax carbon but recycle 100% of the revenue back to industry. While this is not necessarily a bad idea, the evidence she sights from Denmark’s experience is pretty JV. How much of Denmark’s comparatively strong clean energy growth came from R&D investment vs. simple resource availability? Who knows. European carbon emissions have gone up since a carbon tax was imposed, but how much higher would they have been without the tax? Not relevant. And oh yeah, just ignore all of the petty equity and distributional implications.

Also, this sentence didn’t make any sense: “But unless steps are taken to lock the tax revenue away from policymakers and invest in substitutes, a carbon tax could lead to more revenue rather than to less pollution.”

Sorry for the random rant. Read and form your own opinion, of course :)

UPDATE: Apparently the Environmental Econ guys got to this before I did, pointing out that demand for gasoline is not perfectly inelastic. Although, surprisingly, they forgot to hyperlink their first behavioral response. You guys are slipping!

Another Update: Over on Grist, David Roberts adds to the Prasad critique by pointing out (as I weakly alluded above) that the US aint Denmark, and that distribution and ease of transition matter a lot. My favorite line: “Far as I can tell, though, what Prasad calls not spending looks a lot like what the rest of us call spending.”

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6 Responses to “Who vets NYTimes op-eds?”

  1. David said

    The debate about what to do with the revenues from carbon taxes (or permits under cap-and-trade) is going to be a big one – big in Australia right now as we start to debate how the emissions trading scheme that the government has committed to will work.

    Is there any data on when it’s good to plough the money into clean energy R&D versus use it to reduce other taxes? (there certainly wasn’t in that article). I’m guessing it’s only when there’s some reason why there’s a failure to invest adequately without government support and I’m not really sure that’s the case too often once we set up appropriate incentives to reduce emissions (ie, carbon tax or emissions trading).

    I think that sentence makes sense though – the point is will carbon taxes become like cigarette or alcohol taxes and be more about revenue than reducing consumption? To avoid that, you need elasticity which requires substitutes, hence R&D. But that gets you back to the question, does the government really need to come up with the substitutes? Why can’t the private sector deliver them?

  2. Evan Herrnstadt said

    David,

    I agree that we can expect the private sector to pony up a good amount of investment if there is an appropriate price signal out there. However, there are a lot of issues with R&D that make a case for public intervention.

    One example is knowledge spillovers. These discourage an optimal level of R&D because a firm cannot capture the full returns to its innovation. This optimal point, at which marginal social benefit of R&D equals the marginal cost of R&D, is unlikely to be reached. The firm will only invest until the point at which marginal cost equals the marginal private benefit, which is likely to be suboptimal unless spillovers do not exist.

    A good outline of the available options can be found in RFF Issue Briefs by Richard Newell here and here.

  3. David said

    Thanks Evan, I’ll check those out. Will have to look more at when spillovers are likely to occur – it’s an important issue.

  4. [...] taxes in the NYT 27 03 2008 Lots of people are ripping in to Monica Prasad after her op-ed in the NYT on carbon taxes. She says that [...]

  5. Shannon said

    No matter how much we debunk the idea that a carbon tax on gasoline will curb demand without killing the economy, people keep trying. Here’s my take from back in August: http://local-warming.blogspot.com/2007/08/gas-price-demand-and-carbon-taxes.html

  6. Shannon said

    Oh, and a piece by Joe Romm from ClimateProgress over at Grist to the same effect: http://gristmill.grist.org/story/2007/9/20/112934/750

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