About the Pollution Tax

These are several notes on my proposal for running a pollution tax.

The Hawaiian electric company invited their customers to check a box on their payment slips and add $1 which would go to clean energy research. The response was only about 1%. A “rational customer”, X, might have reasoned that $1 from X would benefit X by an amount very much less than $1 even if X believed that the research were highly cost effective on the basis of total cost-benefit calculation. The suggested median pollution tax does not suffer this flaw.

There is at least the problem in this scheme of the geographic bounds of pollution. How big is the pollution district? Also this scheme cannot account for the much greater cost to a particular few individuals with asthma. This is the sort of situation where Ronald Coase would advise that those unfortunate few acquire technical means such as air conditioning. Still this election does not address those issues.

I think that this avoids the trap that Virginia Postrel describes well in External Costs where she invokes Coase as a partial counter.

A quote from this Cautionary Tale:

The initial idea of charging for many of the permits never got off the ground. Many politicians feared that burdening European industries with extra costs would undercut their ability to compete in a global marketplace. In the end, the decision was made to hand out virtually all the permits free. A regional carbon tax may need something like tariffs on inter-regional trade. Presumably these would try to capture the amount of CO₂ produced during manufacture of traded goods. This is complex and fraught with rent seeking problems.