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Sunday, February 25, 2007

More Global Warming

In a recent article in the Washington Times, Robert L. Bradley wrote on global warming policy stating:

"Given the importance of wealth in adapting to change of any kind, it is critical we not waste money and resources on mandated conversions to inferior energies or a forced energy diet. Keeping energy plentiful and affordable, and building wealth to deal with problems when they are actually known, is the best climate policy for today."

His idea addresses the fact that global warming is a scientific uncertainty, the study of climate change has for decades been a science with different scientific results. The truth is too little is known about global warming to form policy that will actually impact the situation. Mandated conversions to substitute energies will only result in higher prices to consumers. Bradley believes and I would tend to agree with him that large government subsidies would most likely be used to buy votes than actually try to effect the climate change. So it seems that government policy will have little impact on climate change but will have a huge impact at the voting booth.

I heard on the radio the other day that if we really want to change energy is to let the market work. If energy rises in prices. then we find different ways to get energy and energy use goes down.

I particularly like the statement that we need to keep inferior energy out of the picture. Letr the market work!
Of course, we economists do like the idea of letting the market work. Yet, the idea of global warming resulting from economic activities does seem like a negative externality. As you know, the policy answer to a negative externality is to impose a corrective tax. There is an excise tax on gasoline, and it is at least 40 cents a gallon in most states, and higher in some.

Some people are suggesting global warming policy should involve a higher excise tax on energy. And, of course, a higher excise tax would mean higher prices and lower profits on the carbon energy sources. In some respects would this approach really rely on "letting the markets work?"

Perhaps a relevant question to ponder is just how close the existing excise taxes on energy come to the MEC associated with the global warming policy problem?
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