1 Rolling the DICE : Nordhaus ’ Dubious Case for a Carbon Tax

Economists have almost uniformly treated anthropogenic greenhouse gas emissions as a market failure, requiring government measures to counterbalance the negative externality. William Nordhaus, a pioneer and leader in the field, uses the latest calibration of his DICE model to determine the “optimal” time-indexed carbon tax, starting at $42 per ton (of carbon, not ton of CO2) in 2015 and rising to $217 per ton in the year 2105. In the present paper, I document several weaknesses in Nordhaus’ standard case for a carbon tax, including his unduly pessimistic estimates and the dangers of a poorly implemented policy. I conclude that economists should reexamine several key issues before rushing to judgment on the need for government measures to combat global warming. * Robert P. Murphy is an economist with the Institute for Energy Research. Email: [email protected]. I would like to thank William Nordhaus, Robert Bradley, the members of the NYU Austrian Colloquium, Billy Pizer, and Chul Eddy Chung for their helpful comments.