Wednesday, January 28, 2009

Carbon added tax

This year the countries around the world are supposed to reach an agreement for the next treaty on preventing global warming. This new treaty will replace the current Kyoto treaty and it is hoped it will have bigger targets and involve most of the big polluters countries (one of the shortcomings of Kyoto treaty was that big countries like U.S., China and India didn't sign it). So there is much discussion about what this treaty should stipulate and how it will be enforced. I don't follow all the news on this subject, but in general (main stream media) I didn't see articles written by economists about how to handle global warming. And this is an economic matter after all, since we will have to pay somehow to protect the environment. I thought of the economists I read and I imagined Stiglitz should have written something about how to tackle global warming. And indeed, I found this interesting paper on his site. It discusses various proposals on how to tax CO2 emissions and how the implementation might work or not. The most fair solution in my opinion is the "carbon added tax" which is similar in concept with the VAT: each part of the production chain is taxed according to the emissions it produces for the goods and service he delivers. The total tax in fact is paid by the consumer, which thus has two incentives: to consume less and to consume "greener" products (that carry a smaller tax). For sure it's not trivial to enforce such a tax world wide, but this is a sound solution from the economic point of view.
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