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Prices and Costs and Carbon Tax

There’s a great new blog, Bleeding Heart Libertarian, that I’ve been fondly reading over the last week, dealing with issues of markets and social justice.  There was a quote in a recent post that kind of reflected, in a funny way, my thinking about the Carbon Tax:

Taxation, to be justified, must serve a genuine public purpose (I won’t discuss here what those are). When the majority forcibly dispossesses people of their resources in order to subsidize others in their pursuit of private projects, it violates the principle that persons should be free to set the ends toward which they will use their powers

I would argue that the same hold for minorities forcibly dispossessing people of their resources through their behaviour, which is why I am entirely in favour of a Carbon Tax.  Jonathan says I should never again utter the phrase “price for negative externality”, but I actually think it’s a really important thing for people to understand and consider when thinking about a Carbon Tax.

Markets don’t always work. They don’t work when incentives are wrong (ie. health care), and they don’t work when consumers are disempowered (again, health care).  They also don’t work when part of the cost of something isn’t carried by either the supplier or the consumer, but by the broader public.

Such is the case with carbon.

The price of carbon and the cost of carbon are two completely different things. The cost of carbon already exists. It is somewhat paid by those consuming the carbon, but mostly, it’s paid by people who don’t.  The idea of a carbon tax is for is to bring the price of carbon more closely in line with its cost.

All this complaining about how things will get more expensive is kind of ridiculous. The cost already exists. It’s just that, for the most part, the wrong people are paying it.  So maybe it’s time to turn off the 106cm flat screen TVs if you can’t afford the electricity bill.  Don’t expect others to bear the costs of your TV-watching habit.

Carbon tax is about making a market correction, and ensuring that it is those who consume carbon who are paying for it.  Like all other attempts to account for negative externalities via taxation (alcohol, cigarette, fuel and junk food taxes), it’s a good idea.

*edit* I should note that, to avoid this tax being completely regressive, I do think the additional cost of carbon should be taken into account when adjusting welfare payments. Not an electricity subsidy directly, because it’s necessary that the incentive-correction isn’t nullified, but an accounting for the overall rise in the cost of living that is related to the rising price of carbon, just as all welfare payments should be adjusted for CPI regularly.

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