An is a cost imposed on somebody who is not party to the transaction that produced it.
Pricing it is the standard economic and is simple only on a diagram.
The tax rate should equal the , which requires knowing the damage.
Estimates of the damage from a tonne of carbon differ by a factor of ten across the published literature.
The range is not a failure of economics; it reflects genuine disagreement about how to value a future life.
Choosing a number is therefore an ethical act performed with a spreadsheet.
Quantity instruments avoid that particular problem and create another.
A fixes the environmental outcome and lets the price move, which firms dislike because it removes planning certainty.
A tax fixes the price and lets the quantity move, which regulators dislike for the mirror reason.
designs with a floor and a ceiling now dominate, because both objections are legitimate.
Distribution decides whether any of this survives politically.
A carbon tax is before the revenue is spent and can be strongly afterwards.
Returning the revenue as an equal payment to every household makes the majority better off in cash terms.
Where that was done and explained, the policy survived an election; where the revenue entered a general budget, it did not.
Visibility works against the instrument in a way that its designers underestimated.
A tax appears on a receipt and a regulation does not, although the regulation may cost a household more.
Politicians therefore choose the instrument that hides the cost, which is the less efficient one.
Economists have described this for forty years and have not found a way around it.