Why we don’t price carbon right, and how pricing in externalities could speed up carbon drawdown
Here’s a clear and helpful explanation of how the climate cost of greenhouse gases isn’t priced in, why it should be, and how it could be.
It’s written by the always-excellent Tim Harford as part of a Financial Times series for schools.
That’s quite a thought. How many of our leaders can explain unpriced externalities, and Pigouvian taxation?
Harford lays out the solution – government regulation rather than individual behaviour – with great elegance.
It’s tempting to think of the transition to a clean economy as a huge leap. It is in fact a trillion tiny steps – steps that each of us take, many times a day, all around the world, when we decide how to live, and what to buy.
In each of these trillion steps lurks an uncosted externality. This carbon cost is borne not by a product’s buyer or seller, but by all of humanity now and in the future.
Without eliminating these trillion little externalities, we’re unlikely to solve the problem.
He leaves the reader to ask why this frustratingly simple solution has proved so hard to implement.
But regular readers of the See Through News newsletters will know the answer – the Three-Headed Beasts…