A Twofer: Stimulus Plus a Commitement to Greenhouse Gas Reductions

Maybe someone has pointed this out already. But here goes anyway:

Committing to future CO2 emission reductions now, by either establishing a future carbon tax schedule or future cap-and-trade schedule, could have a strong stimulative effect in the short run. The reason is that owners of carbon-based fuels (oil, coal, and natural gas) would then have a huge incentive to extract resources more quickly in the short run before they are taxed or capped.

I strongly suspect this would cause energy prices to decline. Prices are not especially high at the moment but they are starting to edge up, and lower prices would be stimulative in the short run.

In any case, there is no reason to put a hold on climate policy because of the global recession. Just legislate policy that wouldn't kick in for another year or two and would then be phased in gradually.

Comments

  1. Hi Michael

    I agree - have a look at Stimulus: Spend, Invest or Incentivise on Knowing and Making.

    Looking back at that article I wrote a lot more than I remembered, and there is a lot of discussion about investment versus consumption - but if you get bored you can skip to the last page or two, where I come to more or less the same conclusion as you.

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