I’ll grant you that. The epitome of this was the bet Julian Simon made with Paul Erlich of “Limits to Growth” fame. Erlich was so convinced that we were running out of things that he accepted a bet that he could put together a list of raw commodities that would be more expensive years later than they were then. He lost. Simon’s point was that the ingenuity of people working within a market system would find new ways to mine resources faster than those resources are being used up. And he was right, within the boundaries of the time limit they set.
A good example of that today would be the massive amounts of new fossil fuels being discovered and exploited due to fracking, oil sands reclamation, and new drilling techniques. This doesn’t solve the global warming problem, but it might very well solve the energy problem.
Still, these are finite resources. What can’t go on…won’t. Eventually you run out of them no matter how clever you are. An example of what happens then can be seen with the loss of very large timbers for construction. Most wood for construction now comes from new growth forests with relatively small trees. We have sharply restricted supplies of the kind of huge old trees that used to provide things like beams for large open spaces in construction. Today, our buildings are likely to have more columns or teleposts, resulting in chopped up spaces.
For some uses we’ve replaced those beams with engineered beams, metal beams, or other construction methods, but we’d still very much like to have a better supply of them, and they have become so valuable that a few years ago a company spent a lot of money salvaging an old ship to reclaim its cargo of large logs. We never have come up with a perfect replacement, and the price of such beams has skyrocketed and stayed high. Sometimes, you just can’t overcome reality with cleverness.
Well… the price of oil has fluctuated greatly over time, by amounts greater than the proposed cost of carbon externalities. And the periods of high prices do result in greater R&D spending on conservation and alternative sources, so I accept your general point that if fossil fuels were taxed to cover their externalities it might stimulate research into alternatives.
Unfortunately, you can’t enforce a global carbon tax, so the more likely result is that you’ll simply push energy-intensive activities (i.e. manufacturing) out of the countries that tax carbon. That could result in actually increasing the carbon footprint of our goods. I have never heard a good answer to this problem, or in fact even heard it being addressed by advocates of carbon taxes.
The problem is that oil is fungible. Force a reduction in consumption in country A, and you lower demand and the price drops, which stimulates consumption in country B. So instead of improving the world’s carbon footprint, all you’ve done is create a mechanism for wealth transfer from country A to country B, with little or no change in CO2 output.
In addition, manufacturing in the 21st century is quite mobile, as are high-energy services like computer data centers and server farms. Apply CO2 taxes to the U.S. and not to China, and you will accelerate manufacturing flight and give the Chinese a comparative advantage and an even stronger reason to oppose taxes on their own energy. The greater your taxes, the more incentive other countries have to burn the fuels you are taxing, because they derive greater benefit from doing so.
How do you plan to solve this problem?