Environmentalists really ought to embrace Adam Smith, and use the economic profession's accumulated principles to tackle global warming (as well as other pollution problems).  Until recent years, this is not the approach environmentalists have used.

Many on the outside view the economics profession as (1) academic bean-counting dedicated to the profit motive; (2) devoid of care for the impact on the environment and (3) having little regard for the welfare of the average individual.  This portrayal of economics has been pushed by some on the (far) political left and has been abetted by folks on the political right who have usurped the writings of economics ikons like Adam Smith (the "free had" of the market) and Joseph Schumpeter ("creative destruction").  The right has taken the writings of these and other dead economists out of context to insist that the best way to improve the standard of living for the average person is to ensure that government stays out of the way of nearly every economic activity.  The right argues:

(1) that the government sector is too big, is less efficient than the private sector and therefore we need to hold a constant vigil against growth in government; that furthermore government is always doing too much, constantly impinging on the growth of the private sector; the size of government must be continuously decreased so that the private sector can flourish and GDP can grow;

(2) government policies should not act to redistribute income from higher to lower income people;

(3) market forces should be left to deal with environmental problems.

If some on the right had their way, the government sector would be tasked with the provision of three core services:  national defense, law and order and firefighting, with some crony capitalism mixed in for their good buddies.  This interpretation of the role of government as evinced by dead economists is wrong on nearly every front.

The core services that the right agrees government should provide are all cases where there is "market failure", that is, the private sector would or could not provide those services because of free rider and other problems.  These are public goods that have positive externalities, so economic doctrine would argue a tax should be placed on the entire population to enable the government to provide these services at the optimal level. Most of us accept the need for government intervention in the case of positive externalities, even if we don't understand the underlying economic justification.

Greenhouse gas pollution and, for that matter, any other pollution, is just another case of market failure, except that pollution is a negative externality.  In other words, the price of goods and services does not reflect the full cost to society of producing the things we consume and therefore these items are overproduced.  In the case of negative externalities, orthodox economics argues for regulation to limit production or achieving the same result through the imposition of a tax equal to the pollution damage caused (if the tax rate is set correctly, it causes production to decrease to a more desirable level).

Over time, we have accepted government intervention to mitigate negative externalities, like pollution.  On the whole, this government regulation places limits on certain pollutants and therefore requires the private sector to take mitigating actions.  In fewer cases, government has used a tax to achieve similar aims.

On the whole, government intervention in dealing with negative externalities has worked well.   As a result, we have cleaner water and air.  What we have achieved to date in mitigating environmental pollution is due in no small part to vigorous campaigning by the environmental movement during the past 50 years.  I would argue that much more could be achieved across the portfolio of environmental issues if the tables were turned on market fundamentalists by using the economics doctrine against them.  Market fundamentalists have pushed a corrupted notion of Economics, one that boils down "laissez faire" into "laissez faire for private sector only".

If you google "laissez faire", the top ten definitions state that it means the government should interfere in the affairs of the private sector as little as possible.  These definitions are incomplete.  The nuance attached to the idea of laissez faire by Adam Smith has been lost! (he didn't even use this term in his seminal "Wealth of Nations"), for what he actually believed and incubated into the Economics profession was that the government should intervene in the private sector as little as possible, but that it should act in cases of market failure (i.e. positive or negative externalities).  Go figure, Adam Smith was an environmentalist (and probably a Social Democrat!).

If market fundamentalists actually believe in the writings of the dead economists whose memory they use to push a corporatist agenda, then they should be in favour of pollution taxes, such as a greenhouse gas tax.  But market fundamentalists won't go for it, for they are really just for some form of corporatism, where profits are private and costs and losses are often socialized.

In any case, there is little hope for a significant move towards green taxes until we change how we measure economic well being.  The ways we keep score today, our standard of living would be lower if we imposed taxes to account for pollution.  But we developed our scorecards - GDP and generally accepted accounting principles, decades ago before anyone thought much of accounting for pollution.  Several international organizations are working on alternative methods for measuring economic production that take into consideration measures of individual well-being not accounted for in GDP or perversely miscounted in GDP.  Examples include the Genuine Progress Indicator, or an initiative by the government of France.  It will be a heavy lift bringing these types of alternative standard of living measures to prominence, but we may be better off for it.

Postscript:

After posting this, I saw that Paul Krugman, wrote a piece covering pollution taxes, cap and trade and greenhouse gases for NY Times Sunday magazine for the April 11/2010 edition.  As usual, Mr. Krugman does a great job of laying out the issues.

BaliRand

http://trivcap.wordpress.com