All this explains why a carbon price has to be the centrepiece of any policy on climate change. A price on carbon acts in more subtle ways than any regulator will be able to, encouraging a switch away from coal and towards nuclear energy and renewables, encouraging energy efficiency in every choice we make, and in the last resort, encouraging us to do without products, services and activities where the energy cost is just too high.
All true, of course. And yet it ignores the public choice problem that Harford himself identifies earlier in the piece.
With the price of domestic gas and electricity soaring, the cost of keeping warm, never off the politicians’ radar screens for long, is firmly back on the agenda.
Carbon pricing will increase the cost of electricity, at least in the short to medium term. That’s the whole point. And it’s not going to go down well with voters, even green-eyed ones. There is probably room for some amount of tax increases, especially if other broad taxes are lowered, but it’s an open question if there’s enough room to make any substantial impact on consumption decisions.
It’s a bit of a dilemma. While regulations are easier to slip by voters, they are also more likely to have vast, unexpected, negative, consequences that taxes lack. But taxes are more visible, and more likely to upset voters. Then there is the general problem with pigouvian taxes: how do you know when you’ve set the tax at (or close to) the optimal level?