Wednesday, February 20, 2013

Econ 1 pop quiz

OK kids, what's wrong with the logic of Joe Nocera, respected NY Times columnist?
On Monday, I finally spoke to [climate change expert James] Hansen. His knowledge and sincerity are easy to admire, even if his tactics are not. He told me he would like to see oil companies pay a fee, which would rise annually, based on carbon emissions. He said that such a tax could reduce emissions by 30 percent within 10 years. Well, maybe. But it would also likely make the expensive tar sands oil more viable. If you really want to eliminate expensive new fossil fuel sources, the best way is to lower the price of oil, which would render them uneconomical. But, of course, that wouldn’t exactly lower demand either.
Hint: Key terms for your answer include tax wedge, consumer price, producer price.

Conclusion: Nocera is clueless on the most basic economics of environmental policy. Depressing.

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