For those who want to do a deeper dive, please read this attached 40 page essay by Tariq Fancy, August 2021. (Note: the yellow highlighting in the
pdf file is mine.)
Here are a few relevant excerpts:
“Economics points to one inconvenient truth about climate change policy. And that is that in order to be effective,
the policies have to raise the price of carbon, or CO2, and in doing that correct the externality of the marketplace,” Nordhaus said in a
lecture at Stockholm University, two days before the Nobel ceremony.
“We have to get
billions of people, now and in the future.
Millions of firms.
Thousands of governments… to take steps to move in the direction we want. And the only way you’re going to do that effectively is to
increase the price of carbon.” The idea behind a carbon tax is simple: if you make the entity creating the negative
externality pay the costs of it (say, through a pollution tax), their incentives change and thus their behavior changes — and our existing system of business, markets, and competition starts to innovate toward
greener alternatives. It’s kind of like making a basketball player pay fines whenever they cause harm to fans; if those costs are high enough, players will think twice before playing recklessly and instead find new ways to win cleanly.
While a carbon tax is not perfect, and must come accompanied by a broader set of sweeping policy measures, Nordhaus’ central point is worth noting:
if you want to change the behavior of all of the players in the game, you have to change the rules of the game for everyone.
<2021-08 Tariq Fancy essay.pdf>