Pollution Costs
A letter in response to James Surowiecki’s article (May 17, 2010)
James Surowiecki quotes the economist Raghuram Rajan as lamenting that the loss of faith in Wall Street financial innovations has caused people to cast aspersions on even “the good parts of financial innovation,” including the creation of a carbon-permit market to fight global warming (The Talk of the Town, May 17th). The idea of carbon-credit markets, though, is problematic. There is no economic incentive for companies to reduce carbon emissions, because there is no cost to them for emitting carbon—the price, in terms of the incremental addition to future global warming, is paid by others. The economic solution would be to impose a dollar price on every ton of carbon dioxide emitted. But imposing any such cost would be labelled a tax, and, in American politics, backing a new tax is political suicide. The proposed “carbon credit” market is at best a complicated and inefficient attempt to scavenge some of the benefits of the real economic solution, while obscuring the political cost.