The case for carbon taxes has long been compelling. With the recent steep fall in oil prices and associated declines in other energy prices it is overwhelming.
Those who use carbon-based fuels or products do not bear all the costs of their actions. When we drive our cars, heat our homes or use fossil fuels in more indirect ways, all of us create these costs without paying for them. It follows that we overuse these fuels. While the recent decline in energy prices is a good thing in that it has, on balance, raised the incomes of Americans, it has also exacerbated the problem of energy overuse. The benefit of imposing carbon taxes is therefore enhanced.
A well-designed tax would be levied on the carbon content of all imports coming from countries that did not impose their own carbon levies. The United States can make the case that such a tax is compatible with World Trade Organization rules. Such an approach would have the virtue of encouraging countries who wished to avoid the U.S. tax to impose carbon taxes of their own, thereby further supporting efforts to reduce global climate change.
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