Pigou Club Pigou Club Homepage – an elite group of economists and pundits that promote the use of pigovian taxes

Cap and Trade Incentives

Eric Sutherland wrote a comment:

• "Amongst the many arguements for Pigou taxes, a very important concept often goes unmentioned. The expectation of future taxes creates investment and innovation long before the tax is collected. Consequently, even a very small tax increase phased in over a period of time has an immediate payoff."

I think there is a point to be made about the difference between Pigovian taxes and cap-and trade schemes. If Pigovian taxes are expected in the future people and companies will (or at least some of them) react in the present time. They will buy smaller cars, invest in better insulation etc. But if cap-and-trade scheme is expected the incentives are for the companies to increase their emissions of greenhouse gases. The more they emit now, the more credits they will get in the future. Credits can later be turned into money on the market. It seems to me that even talking about future cap-and-trade scheme could be harmful.

PigouClub.com Noticed

A quick note: this website has been recently noticed by the NPR and prof. Mankiw. Let’s hope they are not too disappointed by the content (not everyone can be Harvard material )

Political Climate Changing, US Getting Greener

It seems things are changing at last. US politicians are starting to acknowledge the costs of green house gas emissions. I’m not sure what caused the change, perhaps it was the documentary Inconvenient truth which became quite a hit.

Sadly the proposed solutions are not within Pigou Club guidelines. Most plans rely on cap-and-trade schemes that most economists are not really fond of.

Tomorrow’s edition of The Economist has an article about the change (in fact it is their cover theme): “some half-dozen bills on global warming are circulating in the Senate.”

The Economist has previously mentioned Pigou club and NoPigou Club, but didn’t pick sides. It seems they proposed their own solution in this edition, but the article is hidden in the non-free section of their website (hint: if you can access it please comment)

The fight to acknowledge the problem seems to be over. The fight for better solutions should begin.

UPDATE: The Economist could probably be put in the “pragmatical Pigouvian” category. They advocate pigovian taxation, but if that is politically not feasible they propose a tough cap-and-trade system based on auctions.

(Thanks to Mr Hedengren for the new data)

State of the Union Address

In his speech President Bush suggested a goal of cutting petrol consumption by 20% over 10 years period. It is obvious that this can be achieved by self regulation of the oil industry so we have nothing to worry about.

Now back to reality. Nice words about cutting consumption won’t achieve anything. The thing we should be focusing are incentives. There is no incentive for drivers to use less gas and Pigovian taxes are the best incentive economists can think of.

Perhaps next year the speech will start like this “The union is strong, but enough about that.. let’s talk about the Pigou Club”

Snow Moving Costs

Here is a fun fact – NYTimes is reporting that Austrian world ski race would not be possible without helicopters importing 100,000 cubic feet of snow from nearby mountains. The cost of the airlift was $389.000.

Is global warming to blame? Maybe.

Lifting the snow – a potential cost of global warming

Congress starts noticing CO2 costs

The Economist writes about some activities in the Congress:
“IN RECENT weeks, a rush of climate-change bills has started circulating
in America’s new Congress…  A national cap on emissions of carbon-dioxide, the main
greenhouse gas, looks closer than ever.”

Cap-and-trade isn’t the best solution for this problem. Mr. Mankiw has this to say: “…they, in essence, give the revenue
from a Pigovian tax lump-sum to a regulated entity. Why should an
electric utility, for example, be given a valuable resource simply
because it has for years polluted the environment?“

Exactly. Replacing cap-and-trade with pigouvian taxes would therefore seem to be a win-win situation.

Car enthusiasts for environment

Mr. Mankiw found another Pigou club member, this time it is the editor of Car talk website. The writer has a few ideas that are not strictly in the Pigou Club manifesto, but the genaral idea of Pigovian taxes remains his main point. The debate continued on their forum.

Proposed milk cow (or tax cow).

If Pigou Club fails..

There is a small chance that Pigou Club will not achieve its goals (I know what you’re thinking – “no way, Pigovian taxes will be here next month”). Here is a short video thats shows us exactly what will happen.

Now think about it.. would you want to be that last guy?

Oil consumption doesn’t hurt anyone!

Daniel Kahneman, a Nobel laureate in economics wrote an article for Foreign Policy about people being too optimistic.

“Excessive optimism is one of the most significant biases that psychologists have identified.”

I don’t have time to think about the artice right now.. I’m expecting a huge increase in Pigou Club membership and have to prepare the web page for millions of visitors.

Climate in 2006

Today NOAA published the data for the last year.

“Globally averaged land temperatures were +0.78°C (+1.40°F) and ocean temperatures +0.45°C (+0.81°F) above average”

It was the hottest year in the USA.

There were also a few places where the temperatures were lower than the average. I will not draw any conclusions because I’m no climate expert.