Undercover Economist: The tax that might just save the world

The Financial Times has been calling for a credible price to be put on carbon emissions, either through a carbon tax or a serious cap-and-trade scheme. Most economists – including this one – would agree.

The textbook argument is that putting a price on carbon would raise the cost of everything we consume that contributes to carbon dioxide emissions. The result would be that consumers and businesses would waste less energy and would switch to lower-carbon alternatives, while businesses would develop new low-carbon technology.

That is all fine in theory.

In practice, would it happen? It’s important to find out. For one thing, politicians remain unconvinced, often insisting – probably because of political cowardice – that consumers do not respond to such taxes. 

The remainder of this column can be read here. Please post comments below.

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Publishing schedule: Excerpts from "The Undercover Economist" and "Dear Economist", Tim's weekly columns for the FT Magazine, are published on this blog on Saturday mornings.
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