The Carbon Taxes to curb climate change emissions should be introduced as a steady and well advertised ramp up, growing from humble beginnings to make harmful emissions really expensive after a decade or two.
Rapid economic changes are very damaging
When introducing economic changes – particularly radical ones – it is really important to do it slowly and predictably. The reason the oil price chock in the 1970s became such a problem wasn’t that oil prices increased, but that oil priced increased very quickly and unexpectedly.
The result of a rapid, negative shock to the economy is that nobody knows which businesses is viable. Suddenly, everyone is losing money. Most could change their operations or increase prices to push their costs onward to their customers, but these customers are suddenly very nervous and price sensitive – often more so than what is sensible. The end result is that everyone is nervous and nobody’s investing – and the economy is in decline.
Slow but steady changes are easier to push through politically
A Norwegian (socialist) minister of finance is famous for once having stated that “it’s incredible how much people can pay in taxes as long as they get used to it”. Changes that take place slowly aren’t noticed so much as rapid changes, and consequently creates much less political opposition. Environmental expenses are a bit like taxes – a cost levied on each of us to pay for a common good – and the trick to get a lot of funding challenged towards emissions reductions is to do it slowly but steadily.