It seems to me that intellectually serious proposals for a tax or virtual tax on carbon (e.g., cap-and-trade) usually start with a couple of important premises about the science. The first is that it is highly likely that human activity has created a material increase in global temperature, and by extension will continue to do so, creating a real risk of negative climate change. The second is that the climate models used to predict how much warming we will experience over the next several hundred years under any given emissions scenario range from highly uncertain to dubious, and this uncertainty is compounded by even less reliable econometric models that relate temperature changes to economic outcomes. They recognize the hubris of pretending that projecting that the cost to the world in the year 2200 of emissions rate X over the next 190 years will be Y% of GDP is anything other than an incredibly crude SWAG. What we need is an insurance policy. Glenn Hubbard in the WSJ Op Ed that Iain referenced follows this logic, as did Gregg Easterbrook in the Brookings global warming panel a couple of weeks ago. So far, so good.
This argument then proceeds, whether explicitly or not, to the idea that the real reason we need a carbon tax is to stimulate the development of technology that will enable us to reduce emissions and/or reduce the impact of GHGs and/or actually get them out of the atmosphere. That is, the static analysis that X tax rate would reduce emissions and resulting economic growth by Y% is not really how things would work because technology would to some extent come to the rescue. It’s a little-known fact that the econometric models used to project impacts of warming almost always embed an “efficiency black box” that assumes some currently unknown technologies will be invented to allow this.
I think this is why these advocates of aggressive mitigation don’t really worry much about the China / India problem, and just pay lip service to the idea that “we have regain credibility”. They’re way too smart to think China and India will really follow us in this regard any time soon. They (reasonably) expect that the technical innovations will come from the US, EU and Japan. They want the economic burden on carbon here to be high so that there is sufficient incentive to invent solutions here that can then be scaled and exported at low unit cost to the developing world. The pain of the tax is the whole point.
I actually think that such a plan would probably “work”. It would just be insanely expensive. We would pay hundreds of billions of dollars per year in forgone productivity for some indeterminate time. This is something like adding the entire cost of the Department of Defense. Then there is the practical reality that no matter what happens in the future, the tax would almost certainly never go away.
Easterbrook raises the good point here that a traditional government-sponsored research program would run the risk of turning into corporate welfare that sucks up money while not providing the insurance policy we want. The problem is that the alternative of taxing the entire economy to stimulate technology development will cost us trillions of dollars. You can probably support an unimaginable amount of waste, and still address the problem for a huge, huge discount through much more targeted programs.