“Energy is currently underpriced in part because its cost does not
reflect the damage inflicted by fossil fuels. Underpricing leads to
overconsumption. Worse, it leads to underinvestment in alternatives. As
long as today’s energy is relatively cheap, there is little incentive
for private firms to develop new fuels and technologies.”

.. but also a reality check: “new taxes remain a political nonstarter, at least for now.”

• "But while technology will play an indispensable role, the lead authors of the M.I.T. report, writing in The Wall Street Journal, argue that the most effective way to reduce emissions is to attach a significant price to carbon emissions, either as a carbon tax or through a cap-and-trade program of the sort now embodied in various legislative proposals in Congress."

It seems that some of Pigou Club ideas are getting more and more popular .

That is good news, but IPCC report also says:

• It is more likely than not (>50%) that there has been some human contribution to the increases in hurricane intensity.
• It is likely (>66%) that we will see increases in hurricane intensity during the 21st century.

Perhaps even the blue areas on that image will someday be partly attributed to global warming. The jury is still out on that one.

PS: David Friedman writes about economics of the World of Warcraft on his blog. If you would like to know more about market forces in computer games it is well worth reading.

“I’ll use this stick to measure the sea level..”

• More important, on “Milton Friedman Day,” is my skepticism, noted in the post above, of empowering the government to choose the bad behavior that warrants a tax.

Another Pigou Club member Mike Moffatt found this quote from Free to Choose:

• Private enterprises will bear all the cost only if they are required to pay for environmental damage. The way to do that is to impose effluent charges–not to have one government agency impose arbitrary standards and then set up another to cut through the first’s red tape.

It looks like Friedman was not a fan of CAFE and similar programs. He did seem to endorse Pigovian taxes in this case. In his book Capitalism and freedom Friedman writes about "neighborhood effects" as a justifiable reason for government intervention in free markets. He also mentions gas taxes as being relatively efficient. Friedman being Friedman also warns about the dangers of excessive intervention. Sadly, we cannot ask him what his opinion is, but I think he should not be considered an opponent of Pigou Club.

• The problem with "sin taxes," whether the sin is smoking, or not recycling, or driving to see Mom, is giving government the power to decide what sin is, what the wages of sin are, and who will pay.

Now hasn’t the government always been doing that? They decided that murder, theft and slander should be punished. In some countries sinning even includes flag burning, not wearing a seat belt or denying the holocaust. In USA sinning includes exposing minors to inapropriate images, while in other countries such incidents would be laughed off. So in essence:

• Pigovian taxation is paying a sum of X for your sins.
• Other sins are taxed by the formula Y*Z

Where Y is the chance of getting caught and Z is the punishment. It seems to me that every punishment (like getting a speeding ticket) is a form of Pigovian taxation. The difference is only in the chance of evading the tax. I wonder what Mr. Mankiw would say about this little theory.

• The Pigou Club dismisses my argument by falsely assuming that their are no transaction or transition costs.

Not quite. In my post I just pointed out there is plenty of room for reducing gas consumption. Wikipedia also has this to say: The average fuel efficiency of European cars is over 40 mpg, Japanese cars 45 mpg, and North American cars 20.4 mpg. Do pigovian taxes create costs for the "sinners"? Of course they do, no one ever denied that. Another criticism comes from Three Sources, which starts off by saying that he has little respect for this site and continues:

• I complained that the site was all but completely devoted to Global Warming.

I’m sorry about that, that seems to be the hottest topic on the menu. Oh and Mankiw’s Pigou Club manifesto starts with: With the midterm election around the corner, here’s a wacky idea you won’t often hear from our elected leaders: We should raise the tax on gasoline. The criticism continues:

• …many people have a long term commitment on their transportation..

Again the manifesto comes in handy: I would like to see Congress increase the gas tax by $1 per gallon, phased in gradually by 10 cents per year over the next decade. Other complaints are more general and could be applied to taxation in general not just pigovian taxes.

• Most people use their cars to drive to work, the store, and to see friends and family. If the tax on gasoline was raised, Mankiw argues, individuals would consume less. However, individuals would still have to go to work, pick up the groceries, and presumably visit with family. Thus there would be little wiggle room for reducing consumption.

Lets try to find some wiggle room
This cool Ford F-150 gets 13 miles per gallon

Wiggle room

 Toyota Prius gets 47 miles per gallon

Perhaps there is some room for improvement after all..