Value and Veracity

If, like me, you don’t have time to read Sach’s new book, take an hour to watch his recent talk at Google. It starts out a bit slow but is ultimately worthwhile.

One great point I hadn’t heard before was for direct carbon taxes over a cap & trade system: since carbon emissions are almost exactly proportional to the carbon in coal that comes out of mines, plus petroleum from oil wells, plus maybe a couple other sources, we can very efficiently monitor and tax the carbon coming straight out of the source (eg, the quantity of coal coming out of the mine) rather than monitoring the emissions out of every smokestack at every power plant and factory. Cap and trade does have the theoretical advantage of setting a well-defined limit on emissions, but it comes with a much larger implementation cost.

As Sachs says, financial types might find the idea of a carbon market sexy, but considering the failures of some recent “financial innovation,” I think it’s prudent to avoid a complex financial solution when a simple and effective tax-based solution is available.

Thanks again to Jamie for this tip and another one: haikus on financial markets.