Last year, I explained to a co-worker that the way to incentivize solar and other forms of clean energy was to disincentivize carbon-based, dirty energy. Sounds simple. In fact, it's as simple as raising taxes on all forms of energy until the cost per unit is equalized.
For those who are not economists (like me early on), these are called Pigovian Taxes. The idea is to internalize (into the price of energy) the externalities of pollution and other negative factors of energy production and use.
The Economist ran a great article that reminded me of the downsides to a Carbon Tax: The politicians will use them as just another source of revenue. It's not enough to say that the tax revenue will be used to remediate the externalities. It just never seems to happen that way. Politicians are addicited to spending tax money the same way as a spendaholic with a millionaire's credit card. It's just too much for them to have self-control.
Too bad. A Carbon Tax gradually put into place over twenty or so years would give investments in clean energy a positive return on investment without necessitating massive government subsidies.
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