Funding Research with a Carbon Tax

It is no secret that, despite the fact that we’ve been aware of global warming for over 50 years now, we are steadily approaching a point of no return. This means that comprehensive and impactful changes must be made and they must me made quickly if disastrous consequences are to be avoided at the global scale. Harnessing the inherent efficiency of the market system is a good way to produce innovation in a quick manner, and so it makes sense to trigger a market response by putting a price on emissions and pollution.

But one piece of this puzzle that markets typically don’t provide adequate funding to is research. Unless a very clear relationship is established between R&D investment and increased profits, markets tend to avoid the risks associated with intensive scientific research. Even pharmaceutical companies, often regarded as leading backers of medical research, actually spend far more on advertising than on research.

Advancing the body of scientific knowledge about global warming and ways to reduce or reverse this process is a critical part of the solution. If a carbon tax is the way to better ammoratize this issue, then a substantial portion of those tax dollars should go to researching carbon neutral alternatives to transportation, manufacturing, building construction, and energy production. The rest of the tax revenue should be allocated to mitigating the negative impacts of higher taxes on the most finanically vulnerable populations.

For instance, money from a carbon tax could be earmarked for researching a portfolio of alternative energy sources (small, competitive pilot projects are preferable to “picking winners”) while the remainder is used to fund new park and rides to connect periurban populations to job centers. This one-two punch approach illustrates how a tax can simultaneously leverage the strengths of the market and government, providing much needed synergy of efforts to resolve climate change.


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