thanks for the pointer.

I am reading it now from http://nordhaus.econ.yale.edu/Balance_2nd_proofs.pdf.

I’ll keep an open mind, in that “cap and trade” *might* be a necessary evil designed to protect American interests and ensure a slow glide rather than crash landing. But even if it turns out to be a necessary evil, it’s best if we dentify it as such and don’t try to pretend that it’s a virtue.

First, I agree that the tax revenue should be returned to the public in total. But why on earth on an equal per capita basis?!? This is one of those things that sounds fair at first, but if you think about it, there is hardly any reason that could justify this. Best to think about the revenue from the tax that you want to pass back to the public as a negative tax. Equal per head essentially means that you give everyone the same absolute tax amount, no one in his right mind would suggest it the other way around, i.e. that the income tax should be designed such that the total $ revenue amount that should be raised is divided by the number of people and then everyone pays that 1/n absolute same dollar amount. Obviously we make this dependent on income.

Second, the tax should not fluctuate with oil prices. The tax should reflect the damage caused by emissions, and that is independent of oil prices. In particular, one of the goals of a carbon tax is to achieve a cost effective emission reduction. For that to work, the tax needs to be the same on EVERY ton of carbon emitted, regardless of the source of the emission. If the tax would adjust with oil prices, what would you do with the tax on emissions from coal burning? Let that change all the time as well? If not, why change the relative cost of emissions between coal and oil as oil prices fluctuate? No, the tax should be a $ per ton of carbon emmission, and that amount should reflect the damage caused by a ton of emission. Actually, this is all textbook 101 econ…

A carbon tax is not progressive. He is simply wrong there. The proper analysis of who is hit hard by this starts not from total emissions (like he does), but rather from marginal costs of reducing of emissions. That makes the analysis much more complicated, but his remark just doesn’t make any sense.

Hansen is a typical case of natural scientist who thinks he can do the economics of this issue on the side. He is not totally wrong, but at the same time clearly doesn’t really understand how taxes etc work. Unfortunately the climate change debate is dominated by people like him. Probably the best and most accessible text on the economics of climate change right now is by Bill Nordhaus, “A Question of Balance”, an excellent book by an excellent economist.

But, don’t take this too negative, in general Hansen is right to ask for a carbon tax

I think it is also quite nice. I am currently going through the different variants of the “cap and trade” system now. My intuition is that that this is not the right approach.

I am currently reading http://online.wsj.com/article/SB122826696217574539.html which is a recent article on the matter.