One option to address the problem of CO₂ in the atmosphere is large machines to wash CO₂ out of the air. The removal of carbon will at least partly offset current emissions, and could actually be used to reduce the carbon content of the atmosphere and restore historic levels of atmospheric carbon.

Several organizations are developing prototype machines that, like trees and other vegetation, absorb carbon and thus reduce atmospheric carbon. The machines use rotating filters to trap and liquify CO₂, and are designed to trap from 1 ton to hundreds of tons of CO₂ per day. The liquified CO₂ can then be piped underground or used as feedstock in the production of synthetic fuels for transportation. With current technology, the cost of carbon washing would be roughly $200 per ton. But if the technology for carbon washing develops at the same pace as other recent new technologies, the cost per ton could drop to roughly $30. At that cost, a tax of roughly $0.25 per gallon of gasoline would cover the cost of capturing the CO₂ it generates.

How would a carbon tax affect the incentives for carbon washing? Suppose a firm that produces CO₂ has a marginal abatement cost of $90 per ton and faces a carbon tax of $70 per ton. The firm will generate CO₂ and pay the tax. But if the cost of carbon washing is $50 per ton, the firm could instead offset its carbon emissions with a carbon washing machine. The result would be a savings of $20 per ton for the firm and less carbon in the atmosphere. The carbon tax also provides the incentives for new carbon-washing firms to develop. Such a firm would deploy a carbon-washing machine and charge a price high enough to cover its costs.

Question.

What are the possible responses to a pollution tax?

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