Is an Optimal Carbon Tax Relevant?
In this issue of Regulation Magazine (Vol. 36, No. 2), Daniel Sutter challenges an article by Bob Litterman who discusses the factors determining an optimal price or tax for carbon emissions (p. 38). The exercise illustrates that from an economic perspective climate change is not catastrophic, but is likely to be of minimal importance in the ultimate determination of such a tax.
What we need to realize is that a carbon tax, once adopted, could easily be raised to a level that chokes off economic growth.
Daniel Sutter is the Charles G. Koch Professor of Economics at the Manuel H. Johnson Center for Political Economy at Troy University and a visiting scholar with the Center for Regulatory Studies at the George Washington University.