Putting a price on carbon is not central planning

Terence Corcoran, editor of the Financial post has written an op-ed (May 31, 2008) entitled "The carbon experiment" with this concluding paragraph which I quote in its entirety:

So carbon tax programs are an experiment — although one that has already been tried. It imposes central planning on an economy based on carbon emissions rather than economic growth and welfare. It didn’t work for the economy, it won’t work for carbon.

I'd like to address that 'central planning' claim in the this post, and deal with the 'experiment' claim in a later post.

I find it ironic that the specter of central planning should be invoked to deter us from adopting a carbon tax. Centrally planned economies (remember communism?) tended to have official prices that did not reflect reality. The resulting inefficiency, waste, and suppression of freedom were deficiencies of that system of government. Most of the world has learned now that prices in a market are a useful tool for gathering and conveying information, and that free markets work better when prices reflect reality.

Now what does all of this have to do with carbon taxes? The point is that adding a tax to the cost of fossil fuels better reflects their real cost - a cost that includes the pollution from burning them. A higher price for coal tells everybody that it's worth spending a little more to develop renewable energy. A higher price for jet fuel tells a business to cut some of its least important airplane trips. The market prices do the work instead of a central authority deciding for people.

Now, I'm pretty sure that Terence Corcoran is not a left-winger, and so I'd suggest that he figure out how to counter Greg Mankiw, an economist who worked in George W. Bush's administration, who is in favour of a carbon tax, and who wrote this Wall Street Journal article that appeared on Oct. 20, 2006 entitled, "Raise the Gas Tax".