Neither can we ignore distributional and moral issues. The U.S., wealthiest nation on earth and a massively larger per capita polluter than any other major developed nation, will not bear the brunt of the early warming pain, in all likelihood

I have read similar posts and comments on this site many times and wish to voice my disagreement.  First we already seeing potential signs of early warming pain in the US -- Katrina, water shortages, droughts, extreme flooding events, etc.  Second, to think that there will not be major blowback here from warming events in other parts of the world is just ignoring the reality of global trade, political instability, resource shortages, etc.  We WILL suffer the consequences here.  And despite our moral leanings, we may not be in any kind of postition to offer much offshore assistance.  

In 100 years, we will presumably be richer, but incremental reductions and a long process of optimization will no longer be helpful. It could very well be cheaper and easier to act now than to defer action to our richer descendants.

Again, I have read similar posts about our being richer in the future.  I suppose if you read the future by our past economic performance you might believe this.  But what is wealth if not the health of planet earth?  Our financial wealth can disappear overnight from all the blowback of financial rackets stealing the resources of the production economy and blowing it all in bubble schemes.  We had better approach the energy and global climate problems from the standpoint that we will never be richer than we are right now.  The transition is now or never.  Our descendants will only be richer if we can redefine wealth in a radically different way than accumulation.  

Sometimes I feel like I'm being a nag on this issue, but it's such an important point I'd like to bring it up again in the context of your post.  

You say that the market mechanism is better for picking technologies than governments.  Let's leave aside the general case, and concentrate on a very specific technology -- public transit.  This is picked by governments.  Ideally, it's picked in ballot measures in municipalities, as has been occurring with increasing frequency, so it may be said that there is popular participation going on here, at least.  But also ideally, the Federal government would go back to funding mass transit at 80% instead of the 50% the Bush Administration imposed, or even better, 90% that the Feds did for the Interstate Highway system.  That is all also a form of picking.

To be a bit more general, constructing a transportation infrastructure is "picking" a system, and it is one,again ideally, that is done in a democratic way.  But it seems to me that it is exactly because public transit involves government funding, and not the market, that environmentalists seem to ignore it, or give it little notice besides ritualistic praise.

But you, Ryan, have done some wonderful posts on public transit (and the DC Metro is funded directly by the Feds, no?), so the contradiction should be very apparent to you.  It's not even that public transit is completely nonmarket -- au contraire, the vendors are all private.  But it does involve "picking".

So can we agree, that at least in the sphere of public transit, it's ok if we aren't using a market mechanism?  Personally, I won't use it to bludgeon anyone with government funding, I promise (although I can't promise for others).

Jon,

I am a big supporter of funding for public transit, which goes hand-in-hand with support for carbon pricing. A carbon tax would encourage more people to use transit, and expanded transit service would reduce the burden of a carbon tax on consumers.

It isn't difficult to imagine a world where private companies developed mass transit solutions. In fact, in the age before massive highway construction, private entities did build and operate transit systems in many of America's large cities. Unfortunately, a half-century of government-funded road construction has destroyed any chance for a private transit company to survive.

Of course, even in a world where private entities did run transit services, those operations should still be subsidized by the government. Transit displays what economists call positive externalities, which suggests that without subsidies, private markets will under-provide transit. And even without highway construction, it's probable that transit would have evolved much as other infrastructure or utility oriented businesses have, becoming either publicly owned or semi-public or heavily regulated.

My main point in the above article, however, doesn't concern infrastructure per se. Reducing emissions is going to involve millions of micro decisions on the part of consumers and businesses, and the market is the most efficient way to deliver cheap and effective conservation and technological solutions within this framework. It's just very difficult for government to replicate this dynamic--to be able to say, look, it will be easiest for consumers to cut back here, and we really ought to invest more in biodiesel as opposed to hydrogen, or whatever.

This isn't to say that government can't have success in technology research. It has, and it will continue to. It's just to say that in looking for the cheapest and easiest solutions to the problem, it would be foolhardy to rule out the market mechanism in favor of a government-funding only approach.

Well, I think we should be building more transit now anyway. Emissions reduction is not the only reason to support mass transit.

The nice thing about using markets and carbon pricing is that it maximizes results while minimizing consumer pain. Say we introduce a carbon tax. One consumer might be fairly indifferent to one type of cheese relative to another, while production of the two kinds of cheese may involve vastly different emission levels. With a carbon tax, the cleaner cheese is the cheaper one. The customer will choose that cheese, and since he's indifferent between cheeses, he's reduced emissions without harming himself.

Now another customer may care quite a bit about cheese types, and he'll choose his favored cheese with or without a carbon tax. That guy, however, may be totally indifferent to one kind of light bulb relative to another. For him, carbon pricing will incentivize the purchase of the cleaner bulb, and he's no worse off. Since we all have some things that we don't care much about, carbon pricing allows us to cut back on emissions where its cheapest for us to do so. But what can the government do in this case? Well, it could say, "everyone must buy the cheese with the lowest emissions level available." That ends up reducing emissions less and hurting consumers more.

There will be some activities, however, for which all consumers find it difficult to cut back. Maybe it's really difficult to make clean water (I'm making this up for example's sake) without emitting a ton of carbon, but everyone needs water, and so everyone ends up paying lot of carbon tax. In this case, private investors know that any technology they come up with to reduce carbon output in the making of clean water will allow them to corner much of the water market, making them millions. As such, lots of firms with good ideas about water will invest in clean water technology. One of them will hit on something, and  we'll get cleaner clean water. And investors will do the same thing for thousands of different products: light bulbs, televisions, iPods, mobile phones, sweaters, and so on. Government can't duplicate this activity--millions of entrepreneurs following the profit motive to make incremental but important improvements in thousands of different goods. Government is far more likely to say: "let's pour millions into ethanol, and maybe into solar panel research, and maybe a few other things."

We absolutely have to harness this dynamic. Now there are going to be cases where the economics make private investment unattractive. There are public goods and other similar products--much of which is infrastructure or network oriented--where government support is absolutely necessary. And you're right, in the event that warming began to proceed on a very short and catastrophic timescale, then there's no substitute for the military-backed authority of the federal government in shaping consumer decisions.

But we're not looking for any old solution. We're looking for the best package of solutions--those that achieve good results without unnecessarily harming consumers or the economy. The market economy has come up with magnificent ways to deliver huge varieties of all kinds of new and improved and cheap and random stuff with great efficiency. Carbon pricing puts that mechanism to work on behalf of the global climate.

...is that Ron Steenblik seemed to indicate, if I'm reporting correctly -- unless this was my idea and he thought it sounded good -- that a value-added tax, that is, at every stage of the production pipeline, would be a good way to implement a carbon tax.  

And I certainly agree that government attempts to interfere with specific product categories, of items that people buy, like electronics, outside of general regulatory framework, are doomed to failure, as the Soviets found out.  My thoughts tend to go more toward the infrastructure, large-design side, not to most of the GDP dealing with consumer goods.

If you price carbon-based fuels for their end user, you effectively do add in a tax at every stage of production (balanced to the degree that each stage consumes that fuel).

You don't need anything more complicated that /gal for gasoline, /gal for diesel, /cuft for natural gas, and $/ton for coal.

No need to worry about product categories, etc.

Or put another way, it becomes a "fuel added" tax rather than a "value added" ... fuel being what we want to discourage, not value.

tax the carbon at the source, before it gets into the economy, not when something is bought by the consumer?  Because the latter would probably not be equitable, it would get businesses off the hook.  A VAT, I believe, would make it easier for businesses along the supply chain/production chain adjust their energy use, they would be taxed for their particular  carbon emissions.

"If you price carbon-based fuels for their end user,"  So it would be the last person to take possession, without resale of the fuel itself.

I'd hardly say that was "before it gets into the economy."

It is very much in the economy, and encourages everyone in the chain to deliver "value" to the consumer at the lowest fossil fuel (and tax) cost.

I'm not following that a VAT-like tax would be "easier."  Fuels become more expensive, firms adjust, as they have been doing for the last 3-5 years.

I assume that the federal gasoline tax works this way now.  Gasoline can change hands many times, but it is the "last purchaser" (be that an individual or a cab fleet) that pays the tax.