The answer is “no” unless we tax them, according to a study recently published in the Journal of Economic Opportunities, The study looked at costs of fossil fuels and renewables over a time frame of 5 to 10 years.
“In recent years, proponents of clean energy have taken heart in the falling prices of solar and wind power, hoping they will drive an energy revolution. But a new study co-authored by an MIT professor suggests otherwise: Technology-driven cost reductions in fossil fuels will lead us to continue using all the oil, gas, and coal we can, unless governments pass new taxes on carbon emissions.
“If we don’t adopt new policies, we’re not going to be leaving fossil fuels in the ground,” says Christopher Knittel, an energy economist at the MIT Sloan School of Management. “We need both a policy like a carbon tax and to put more R&D money into renewables.”
“…the immediate problem of accumulating carbon emissions means some form of carbon tax is necessary, Knittel says — especially given what we now know about declining fossil fuel costs.
“Clearly we need to get out in front of climate change, and the longer we wait, the tougher it’s going to be,” Knittel emphasizes.
Knittel supports the much-discussed policy lever of a carbon tax to make up for the disparity in energy costs. That concept could take several specific forms. One compelling reason for it, from an economists’ viewpoint, is that fossil fuels impose costs on society — “externalities” — that users do not share. These include the increased health care costs that result from fossil fuel pollution, or the infrastructure costs that are likely to result from rising sea levels.
“Taxes on externalities are not inconsistent with the free-market system,” Knittel says. “In fact, they’re required to make the free-market system achieve the efficient outcome. This idea that a pure free-market economy never has taxes is wrong.”