Thursday, May 22, 2008

San Francisco's New 4 Cents a Ton Carbon Dioxide Tax: Could Behavioral Responses Be Enormous?

Ed Glaeser and I have a new paper where we assume that the social marginal cost of an extra ton of carbon dioxide emissions equals $43. With this number in mind, it is funny that the progressive green city of San Francisco is applauding itself for implementing a $.04 tax per ton of carbon dioxide. Now, I know that in this world of behavioral economics 4 cents is "far" from zero but $43 is far from $.04!

Dan Kamen celebrates this first step. Details on the San Fran Carbon Tax

Under what scenarios is he right? One optimistic story is that this is like entering a swimming pool. You first put your toes in and when you get used to the temperature, you jump into the water.

It would interest me whether Mayor Gavin N. has a plan to ratchet up this tax to a higher $ amount once people get used to the idea of paying for this "free good".