Matt Kahn writes:

I have been trying to follow the Copenhagen news stories such as this LA Times piece but I must admit that I do not have a good grasp on how nations actually negotiate with each other on such carbon mitigation issues. Nations know their current carbon emissions (so the USA is at 20 tons of co2 per year per-capita) and we know how to multiply numbers. If carbon dioxide has a price of $35 a ton then the average American will face a $700 a year bill to continue to live his "status quo" lifestyle while the average person in China would face a $140 bill. Now, what we don't know is what would be the medium term and long term effects of this pricing on economic growth and carbon mitigation technologies.

 

Don't count on the economists to have a good "Computable General Equilibrium" model to yield valid estimates of how each nation's economy will evolve in the presence of a carbon tax. If we introduced uncertainty into our models the confidence intervals would be huge. But today a group of economists are getting rich peddling their "scientific" models as truth in predicting very difficult policy counter-factuals.

 

Read Matt's full entry at his greeneconomics blog.