On Global Warming

Someone on Slashdot writes:

The problem with environmental issues is that, contrary to your assertion, the free market doesn’t work unaided. It’s an example of what economists would call an “externality”, because it’s a cost which doesn’t fall on the players in the market, and hence cannot supply information to that market.

The notion that if we don’t reduce our carbon emissions now then the world we be an ugly place in 50-100 years time simply can’t be accounted for without giving the free market a helping hand, because unaided there’s no mechanism by which that potential future event has a dollar cost for the companies and consumers involved in energy transactions today.

This is specifically the situation that governments are for - they are able to apply to a cost to something and hence influence the market in a way that accounts for this externality. For example, raising the tax on gasoline is a very direct way of applying some of that external cost into the appropriate market. The free market still does it’s work, we’ve just made the cost of gasoline what it “should” be to take account of future global warming. The market can then decide what to do about it, whether it’s building more efficient cars, taking fewer journeys, or investing in alternative fuel sources.

No need for fancy tax credits or pork barrel schemes. Just make the price of gasoline (and other carbon-emitting fuels) reflect the future global warming risk, and let the usual action of the market do it’s work.