The Treasury first drafted a carbon tax bill in 2010. Since then it has been discussed ad nauseam, commented on, redrafted and rediscussed. The latest gabfest was in Parliament on March 14. They still haven’t got it right. Much of the problem comes from the fact that they have completely forgotten the principles of such a tax. These principles were developed about 80 years ago by the British economist Arthur Pigou. He pointed out that the price of goods may not include their social costs — what are called "negative externalities" by economists. The tax on plastic bags is an example. If the bags are discarded after use, they form nigh on indestructible litter. If the tax is set at the cost of collecting the litter, it pays the user to reuse the bags, and litter is reduced. Economically, this is a far more efficient solution than paying someone to gather the rubbish. There is a slight problem; it is a regressive tax. Its impact is the same on the rich as on the poor, and the poor are ...

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