Another reason for a carbon tax ... it'll lower prices!

I read my own required reading. From the WSJ piece advocating a global carbon tax:

Imposing a tax or fee on each ton of carbon emitted would encourage technologies that produce less carbon, advocates say. It would raise the price to consumers of activities that burn carbon, such as driving. "If there's an iron law in economics, it's that if you raise the price, you lower demand. And so if you raise the price of burning fuels, you'll lower demand for them," says Mr. Green [resident scholar at AEI].

As thousands and thousands (millions?) of micro principles students know as of this week, if demand for a product falls then the product's price will also fall. Hence, a carbon tax leads to lower prices!

Spot Mr. Green's mistake, or, sloppy language, that might lead to the confusion in the previous paragraph.

Comments

[Bates]

Higher prices lead to a lower quantity demanded but do not cause a change in demand.

[John Whitehead]

Bates,

Right on!

And if economists don't like to say "quantity demanded" to the media because it is too clunky or whatever, we ought to use "consumption" or something other than demand.

[Kevin L]

The effects of reduced costs due to over supply are only temporary. The supply side will reduce production to meet demand and the distributed costs of production will increase. There will be less oil pumped and the infrastructure, development, and exploration costs will have to be distributed over fewer barrels of oil. Where is the logic? The heavy industries as well as agriculture, trucking, airlines, ect would be exempt from the tax due to lobbying. Furthermore politicians will have already spent future projected taxes even while the tax revenues are decreasing due to reduced consumption. Thus the overall effect would be to burden the tax payers and reduce the quality of life for the average American.

[Toby Considine]

Just a few weeks ago, I spotted a news article in Delaware wherein it was reported that the local utility was offering incentives in the form of lower electricity rates to companies that would move there. It seemed predicated on getting high energy using companies (to whom the proposal would be enticing) to ignore new energy costs (and this is good why?) to move to Delaware (and thereby put off dealing with their high energy needs).

Not sure if the new taxes are good, bit its oposite, these subsisdies, is surely awful...

[reason]

Kevin L

Thus the overall effect would be to burden the tax payers and reduce the quality of life for the average American.

As against the quality of life of the average polar bear. Sheesh! You would have thought that some people would realise we aren't talking about this for the fun of it!

[reason]

Actually there is a valid point to make in this case, re falling demand and lower price. If ONLY the US were to introduce the (higher) tax, then the world price could be expected to fall. This is of course the fundamental problem with action against global warming, the free rider problem.

[Kevin L]

I don't loath the polar bear, quite the opposite, but if you ask the average American to return to Walton Mountain they are going to elect new policies, whatever may happen to the polar bear. Yes some will work hard at reducing their carbon footprint, and for every thirty who do, there will be five new beastly SUV's that wipe out their sacrifices. Let’s say we make a valiant attempt to reduce our consumer oil consumption nationwide from the current 9mbd to say 7.5mbd. OPEC would make cuts in production, and the third world countries would increase consumption. They have already stated they are not the cause of the current crisis and should not have to face the economic changes of dealing with it. The Chinese have given some lip service to reducing consumption, but they are burning coal like mad. At any rate reduction in consumption on the US side won’t relieve world markets much, and the primary issue of carbon emissions should be dealt with in a constructive way, not just penalizing the end user. If you tax with the idea of reducing consumption you also burden national productivity. Yes some will drive less, but the costs of goods and services will go up. If you levy taxes against those that are profiting from the current system, those with the knowledge and resources to make changes, then they will apply changes to automobiles to not only improve the environment but also improve national productivity and efficiency. Heavily taxing fuel proves no incentives for the auto industry to make advances in fuel economy.

[Kevin L]

Should have said - Heavily taxing fuel provides no DIRECT incentives for the auto industry to make advances in fuel economy.