Peter Klein on the Pigou Club and Externalities

Mike, I think you mischaracterize Argument 1. The relevant comparison is not the efficiency of carbon taxes relative to other taxes, but relative to alternative institutions for dealing with pollution externalities, such as cap-and-trade, common-law tort remedies, etc. See some discussion here.

I highly recommend Peter's blog post, though I think the tort-based approach is as useful as the Coase Theorem (and we all know what I think about the Coase Theorem). I will attempt to answer his questions.. and ask him one of my own:

How can government officials possibly choose tax or subsidy amounts that compensate for the actual harm suffered by, or benefit enjoyed by, all possible third parties for all activities generating externalities?

They probably can't. But as I described here I think it is an irrelevant issue.

What are the efficiency consequences of establishing, empowering, and funding a government agency to compute and implement Pigouvian taxes and subsidies?

The tax rates for carbon will be set the same way the government sets every other tax rate. Does Canada's Ministry of Finance need a seperate government agency to tell them how high to set income tax rates?

That being said, I am worried about what introducing Pigovian logic could lead to.

Where will the tax revenues go?

General revenues, like almost every other tax.

My questions for the tort-based approach to reducing emissions:

Q: My wife has asthma that is set off by air pollution. This causes real damages to my family. Who do I sue?