ABSTRACT
This extended Stollery model raises the issue of when to get serious about global warming. A hands-off person might say that since all the oil will be extracted in the end anyway, and the full impact of carbon dioxide accumulation will ultimately be felt, why bother taxing oil extraction on our way to the inevitable. A hand-on person might say we should regulate oil extraction and burning so as to have this inevitable extraction cause the least harm possible. Such a person is selecting the best consumption profile among many and, given the associated Pigouvian tax, the maximum level of utility. These two prescriptions deserve serious reflection. There is no reason to doubt that RMS would endorse so-called carbon taxes if they could capture the relevant externality properly. In EROTRE he contemplated ‘conservation subsidies or a system of graduated severance taxes’ to deal with a possible wedge between the private rate of discount and the social rate. Such interventions have been advocated by Nicholas Stern to address the risk of a possible huge future cost from continued global warming.
