Taxing negative externalities - it's a good idea most of the time

Australia has managed to become the subject of much criticism because it insists on dragging its heels on tackling climate change. The rest of the world sees it as an urgent problem that requires concerted action. Australia insists on doing less than everyone else and the world suspects it is because they want to steal a cost advantage!

The British government are now proposing to change their target of an 80% cut in carbon emissions by 2050 to 100%. In other words Britain will not add any carbon to the atmosphere at all due to economic activity. They will do this by taxing carbon emissions and subsidising green energy generation.

There is some doubt about Britain's ability to meet its current target as the BBC article below indicates. However admire the ambition and try not to be too embarrassed by Australia's pathetic effort and climate change deniers.

Dealing with negative externalities with taxes is a well established solution. A.C.Pigou wrote about taxing externalities at the start of last century. Taxes like the Australian carbon tax are known as a Pigouvian tax.

Below re two articles. One on the British governments ambitious target and another on AC Pigou's economics.

The BBC article is here

The Independent talks about Pigou and taxes here

These articles are of great value to VCE Year 12 students and IB students. Knowing how to correct market failure and how taxes work is essential knowledge, as are the pros and cons of using taxes.