Can a Carbon Tax be a Generational Win-Win?

A recent NBER working paper by a distinguished team of economists argues that a properly designed carbon tax can be a generational win-win. The team, led by Laurence Kotlikoff of Boston University, also includes Felix Kubler of the University of Zurich, Andrey Polbin of the Russian Presidential Academy of National Economy and Public Administration, Jeffrey D. Sachs of Columbia University, and Simon Scheidegger of the University of Lausanne.

By a generational win-win, Kotlikoff et al. mean a policy that would benefit not only future generations, who would reap the benefits of reduced warming, but also those of us who would begin paying the costs of mitigation now but would live to see only small, initial, climate improvements. The perception of a long lag between investments in climate mitigation and their full benefits has been a serious impediment to effective climate action. That is true both for democratic governments and for more authoritarian regimes, to the extent they are sensitive to public opinion. Although the paper discusses only carbon taxes, similar issues are raised by cap-and-trade, public investment, direct regulation, and other mitigation strategies.

The first section of this commentary outlines the Kotlikoff plan. The second section compares it to alternative strategies for dealing with the objection that climate action would…