![]() ![]() Among climate economists and wonks, the hunches, pet theories, and ritual invocations of "political will" too often are substitutes for deeper, systemic political analysis. Unfortunately, these political constraints are not nearly as well-understood as the economic dynamics of carbon pricing. The political constraints on carbon pricing The obvious answer is that carbon pricing faces various political constraints, which prevent the carbon price from rising to the proper (high) level. The point is, carbon prices, where they exist, are too low. There are reasons to doubt that the kind of modeling exercises that produce the SCC actually tell us anything worthwhile, but that's a subject for another post.) Most of those damages are in the future, so they are discounted and expressed in terms of today's dollars. (A side note on the social cost of carbon: It is an estimate of how much a single ton of carbon emissions imposes in social costs, through climate damages. Many economists have argued more recently that the true social cost of carbon is much higher than most conventional estimates. All of them, save Sweden's, are below the 50th percentile, $75.Īnd these SCC estimates are from a 2011 paper by Richard Tol (albeit updated to 2015 dollars). On the right are existing carbon prices, as set by taxes and cap-and-trade programs around the world.Īs you can see, more than half of existing carbon prices in the world are below even the 33rd percentile of SCC estimates, $15. On the left is the range of estimates for the social cost of carbon. The graph below is based on a working paper by MIT's Jesse Jenkins and Valerie Karplus. That is to say, they fall short of the social cost of carbon (SCC), as estimated by economists. Proof of political constraints is in the puddingĬarbon prices, where they exist, are too low. It's time for a better, more grounded conversation about what's possible for carbon pricing. But their engagement with politics ranges from naive to disdainful. This is not a topic on which the more fervent carbon tax advocates have showered themselves with glory. We have to grapple with the political constraints on carbon pricing and think about how they can be overcome. To answer that question, we have to go beyond economics to political economy: institutional structures, power, and influence. Let's stipulate that it is our ultimate goal. Let's assume that a carbon tax, equal to the social cost of carbon, is the ideal climate policy - the most efficient and cost-effective way to reduce carbon emissions. In this post, I'm going to do something different: I'm going to accept the premise. ![]() In my last post, I questioned the premise that a carbon tax is always and everywhere the "first best" climate policy. In some quarters, rhetorical support for a carbon tax is seen as a litmus test for whether policymakers are serious about climate change. A consensus has formed among economists, climate wonks, and progressives that a carbon tax is the best way to address climate change. ![]()
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