Arnold Kling  

A Pigou-Hanson Synthesis for Global Warming

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Ross McKitrick writes


climate models predict that, if greenhouse gases are driving climate change, there will be a unique fingerprint in the form of a strong warming trend in the tropical troposphere, the region of the atmosphere up to 15 kilometres in altitude, over the tropics, from 20 degrees North to 20 degrees South. The Intergovernmental Panel on Climate Change (IPCC) states that this will be an early and strong signal of anthropogenic warming. Climate changes due to solar variability or other natural factors will not yield this pattern: only sustained greenhouse warming will do it.

...Suppose each country implements something called the T3 tax, whose U.S. dollar rate is set equal to 20 times the three-year moving average of the RSS and UAH estimates of the mean tropical tropospheric temperature anomaly, assessed per tonne of carbon dioxide, updated annually. Based on current data, the tax would be US$4.70 per ton...

This tax rate is low, and would yield very little emissions abatement. Global-warming skeptics and opponents of greenhouse-abatement policy will like that. But would global-warming activists? They should -- because according to them, the tax will climb rapidly in the years ahead.

The IPCC predicts a warming rate in the tropical troposphere of about double that at the surface, implying about 0.2C to 1.2C per decade in the tropical troposphere under greenhouse-forcing scenarios. That implies the tax will climb by $4 to $24 per tonne per decade, a much more aggressive schedule of emission fee increases than most current proposals.


The tax on carbon is, as Greg Mankiw reminds us, Pigovian. Linking the tax to a measure of temperature change that is tied to the theory of anthropogenic global warming is a form of putting climate modeler's money where his mouth is. In fact, one can imagine adding a wrinkle where there is a futures market in the temperature indicator, and the tax is tied to the futures price. The futures price would provide a betting market--hence the Robin Hanson half of the synthesis.

Link from Steve McIntyre, via Glenn Reynolds.


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TRACKBACKS (3 to date)
TrackBack URL: http://econlog.econlib.org/mt/mt-tb.cgi/719
The author at Eli Dourado in a related article titled Smart Carbon Taxation writes:
    People differ on questions of values, and this is often a source of political division.  But where possible, should we not allow differences on questions of fact to be a source of division.  That is why I cannot stop thinking about this piece by Ross... [Tracked on June 16, 2007 12:05 AM]
COMMENTS (5 to date)
Robin Hanson writes:

I like it! Using the futures price would be a substantial improvement too.

Matthew c writes:

Nice idea.

So does this mean that if the predicted tropospheric warming either occurs, or does not, the respective parties to the global warming controversy will end their debate?

Robert Speirs writes:

I like the idea of running the tax in reverse if cooling occurs. And, of course, outlawing hybrids and solar panels. And no nuke plants. Coal only! Or should the interpretation be that cooling would invalidate the straight-line incremental warming model completely and means that future temperatures cannot be predicted with any accuracy, as common sense would suggest?

Patri Friedman writes:

But Pigouvian taxes are not efficient if they are taken and wastefully spent by governments:

http://catallarchy.net/blog/archives/2006/08/07/pigovian-taxes-are-not-efficient-if-the-money-gets-wasted/

Unless you can demonstrate that there is a real prospect of a Pigouvian scheme where the money gets given to people instead of spent by governments, as far as I'm concerned all this Pigouvian stuff is just more excuses for taxing and spending.

Brent Wheeler writes:

I like the idea for its adaptive nature. A colleague points out though, the danger that temperature may rise for reasons other than carbon emissions - notably natural reasons - then we have the worst of both worlds - high taxes and the costs of having cut carbon consumption .... and arguably no way to know it

So whats the fix guys?

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