Planet Gore

When Pigous Fly

All due respec’ to Tim, of course, but there have been several studies that suggest that the marginal social cost of emissions taxes is higher than the tax itself.  In other words, the excess burden of the new taxes forms a deadweight loss to the economy greater than the value of the externalities avoided.  For example, one study found that a $5 per ton carbon tax would entail social welfare losses of $25 a ton.  Driving and energy use are that valuable to the economy.  So it is quite possible that the optimal tax on energy use should be negative, to encourage more of them.  More on this here.

All of which points to the Coasean idea that there are some externalities where we should just choose to absorb the costs and not worry about them. So, no, Jerry and Peter are not nuts –  the market has considered the externalities and decided it’s not worried about them.  You can get empirical evidence of this by asking just about anyone whether they’d be willing to consider an extra tax on gas of 60c.  There’s a reason why legislators want to dress taxes up in cap and trade schemes…