This is a Lamborghini Contach, bask in it's magnificence!
When I whizz past you in my Lambo taking the kids/kid (the other two can walk) to school I get the benefit of going from A to B and looking spectacular. You on the other hand get to inhale the noxious fumes and suffer a cost which could eventually be something serious like dying early. The social cost to me driving has a social cost that I don't have to pay and it's called a negative externality. Unless the government does something I never have to pay the full cost of driving my fancy car, woohoo for free markets. Some would even argue that I'm providing a positive externality because you get to see my beautiful car.
Some externalities can be owned, like Elephants but some can't. No one owns the environment or the air we breathe. Believe it or not there has been a solution to this problem of externalities like climate change that’s been around for more than 100 years. It's called a Pigovian Tax and a lot of economists agree that this is a better solution than a lot of the policy being generated today like massive government spending. Rather than trying to convince you that it's a good method I'll leave it to Gregory Mankiw.
The economics here is straightforward: emitting carbon into the atmosphere entails a negative externality. In absence of any policy, people will emit too much. The Pigovian policy response is to impose a tax on carbon emission. This will induce households and firms to internalize the carbon externality when deciding, for example, how much to drive, what kind of car to buy, how much electricity to use, what kind of electric power plant to build, and so on.
The hard part of the problem is figuring out what size tax is appropriate. The right tax would equal the size of the external cost of carbon emission — that much is clear. Unfortunately, there is little consensus about how large that external cost is. One of the most prominent economists studying this topic is Yale’s Bill Nordhaus. Nordhaus [2007] has suggested a tax of $30 per ton of carbon, increasing to about $85 in 2050. A $30 carbon tax is fairly modest in size: it would increase the price of gasoline by only about 8 cents per gallon.
Smart Taxes: An Open Invitation to Join the Pigou Club 2009 https://scholar.harvard.edu/files/mankiw/files/smart_taxes.pdf
There has been subsequent work done on how much the carbon tax should be per ton and it came in at $185.
https://pubmed.ncbi.nlm.nih.gov/36049503/
The IMF are using different numbers around $75 per tonne
https://www.imf.org/en/Publications/fandd/issues/2021/09/five-things-to-know-about-carbon-pricing-parry
There is still no consensus on how much to tax a tonne of carbon but the amount the US is taxing it today is not enough. I lived in the UK for nearly 40 years and drove both Petrol and Diesel cars and I can assure everyone that the cars were great. One of the first things I would do if tax increased over here would be to change my car to electric or something a lot smaller. Knowing what we know today the lack of tax on fuel in the USA and Canada is irresponsible.
