EXCERPT: 'SuperFreakonomics,' by Steven Levitt and Stephen Dubner

In principle, this shouldn't be such a hard problem. If we knew how much it cost humankind every time someone used a tank of gas, we could simply levy a tax of that magnitude on the driver. The tax wouldn't necessarily convince him to cancel his trip, nor should it. The point of the tax is to make sure the driver faces the full costs of his actions (or, in economist- speak, to internalize the externality).

The revenues raised from these taxes could then be spread out across the folks who suffer the effects of a changing climate -- people living in Bangladeshi lowlands, for instance, who will be flooded if the oceans rise precipitously. If we chose exactly the right tax, the revenues could properly compensate the victims of climate change.

But when it comes to actually solving climate- change externalities through taxes, all we can say is good luck. Besides the obvious obstacles -- like determining the right size of the tax and getting someone to collect it -- there's the fact that green house gases do not adhere to national boundaries. The earth's atmosphere is in constant, complex motion, which means that your emissions become mine and mine yours. Thus, global warming.

If, say, Australia decided overnight to eliminate its carbon emissions, that fine nation wouldn't enjoy the benefits of its costly and painful behavior unless everyone else joined in. Nor does one nation have the right to tell another what to do. The United States has in recent years sporadically attempted to lower its emissions. But when it leans on China or India to do the same, those countries can hardly be blamed for saying, Hey, you got to free- ride your way to industrial superpowerdom, so why shouldn't we?

When people aren't compelled to pay the full cost of their actions, they have little incentive to change their behavior. Today, people are being asked to change their behavior not out of self- interest but rather out of selflessness. This might make global warming seem like a hopeless problem unless -- and this is what environmental activists like Al Gore is banking on -- people are willing to put aside their self- interest and do the right thing even if it's personally costly. Gore is appealing to our altruistic selves, our externality- hating better angels.

One of the unlikeliest positive externalities on record came cloaked in a natural disaster.

In 1991, an eroded, wooded mountain on the Philippine island of Luzon began to rumble and spew sulfuric ash. It turned out that beloved old Mount Pinatubo was a dormant volcano. The nearby farmers and townspeople were reluctant to evacuate, but the geologists, seismologists, and volcanologists who rushed in ultimately persuaded most of them to leave.

Good thing, too: on June 15, Pinatubo erupted for nine furious hours.

The explosions were so massive that the top of the mountain caved in on itself, forming what is known as a caldera, a huge bowl- shaped crater, its new peak 850 feet lower than the original mountaintop. Worse yet, the region was simultaneously being lashed by a typhoon. According to one account, the sky poured down "heavy rain and ash with pumice lumps the size of golf balls." Around 250 people died, mainly from collapsed roofs, and more died in the following days from mudslides. Still, thanks to the scientists' warnings, the death toll was relatively small.

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