Put a Price on Carbon Now!
Before the COVID-19 pandemic and the accompanying fall in oil prices, a carbon price would have been immediately painful for the countries that imposed it, but far better for everyone over the longer term. In this unprecedented moment, introducing a carbon price would be beneficial both now and for the future.
MELBOURNE/PRINCETON – Six years ago, oil was selling for over $100 per barrel. Today, thanks to the twin shocks of a price war between Saudi Arabia and Russia, and falling demand caused by the COVID-19 crisis, the price is closer to $20 a barrel. That makes this an ideal time for industrialized countries all over the world that have yet to put a price on carbon to follow the lead of those who have.
Business leaders, media, and economists agree: carbon pricing is needed so that companies and governments price in the full costs of the climate harms resulting from their emissions. The classic justification of the free market rests on voluntary transactions, in which buyers choose to pay prices that cover the costs of production. If some of those costs are imposed on third parties that cannot choose to avoid them, and that are not compensated for them, the market has failed and the transaction is illegitimate.
Put another way, if companies and governments are able to emit carbon dioxide without paying for the resulting harm, they will exceed the quantity that would maximize utility for all who are affected by their decisions. Somewhere, people will be paying for the extra quantity emitted, whether the price is denominated in property damage, loss of life, or the need to adapt to different climatic conditions.