In a recent editorial, Bloomberg, the financial news firm owned by billionaire New York City mayor Mike Bloomberg, endorsed the implementation of a carbon tax. Editorials by the organisation are supposed to represent the views of Bloomberg himself, making him one of the most politically important advocates of a carbon tax in the US to date.
The underlying logic behind the levy is simple - it is easier to make irresponsible choices when you don't have to deal with the consequences. A carbon tax (and "Pigovian" taxes more generally) holds people and corporations accountable for their choices. Currently, the burden resulting from pollution is absorbed by society rather than individually, Bloomberg's editors argue:
"The economic case is compelling: Climate change is the "greatest market failure the world has ever seen," as former World Bank economist Nicholas Stern put it, because the hefty environmental costs from burning fossil fuels are borne by society, not by those who emit greenhouse gases. With no economic reason to limit pollution, there's every incentive to overproduce. So-called Pigovian taxes carbon taxes and cigarette taxes, for example raise the price of things that drive up costs to society."
In a society that embraces individual freedom, at least intuitively, the case for carbon tax is pretty much irrefutable. So much so that even Republicans (sticklers for the sharing of burden) have warmed to the idea:
"The basic concept of a carbon tax enjoys support from a majority of Americans, including many Republicans. Former Representative Bob Inglis, a South Carolina Republican, recently started a think tank to build support for a carbon tax, and the conservative American Enterprise Institute has joined Brookings and the International Monetary Fund in an initiative to explore one. Greg Mankiw of Harvard University and Glenn Hubbard of Columbia University, two top economic advisers to presumptive Republican presidential nominee Mitt Romney, have been vocal proponents, along with Arthur Laffer, a former economic adviser to President Ronald Reagan."
While it is generally agreed that people should pay for their bad choices, and carbon emissions are, in fact, a bad choice ([a notion that has come under some scrutiny in Australia]
Bloomberg addresses this claim by suggesting that the revenue resulting from the levy be evenly split between corporate tax concessions and addressing the deficit:
"To avoid one of the biggest downsides of a carbon tax slower economic growth as much as 50 percent of the revenue should be used to lower corporate tax rates for all companies. Such an offset could boost economic output by giving business a bigger incentive to invest and hire, research by Brookings and others shows. The remaining revenue should be used to help reduce the federal deficit and make the tax code more progressive, easing some of the bite from higher electricity and gas prices."
Thus, not only would firms find it relatively cheaper to invest in fossil fuel efficient technology instead of relying on expensive inputs, but they would also have the money to do so. In this sense, the tax would serve both as a deterrent and investment in "green projects".