I’ve been thinking more about environmental economics since I blogged about retail carbon credits. I was surprised about how cheap (some would say unrealisticly cheap) wholesale credits are — about $2.20 per tonne of CO2. (Correction: I wrote this item based on that price but it’s dropped even further in the last month, now just $1.60/tonne CO2 in Chicago, but $25 in Europe.)

Today, many of my friends have bought a car like the Toyota Prius, feeling they are doing their bit to help the environment by burning less gas. The Prius costs around $3,000-$6,000 more than a comparable old-style engine car (in part because high demand keeps the price high), and the savings on gasoline don’t justify it on a financial basis unless you do nothing but drive all day. So the main reason to buy it is to help the environment and to make a statement before your peer group.

Problem is, there’s an argument that you’re hurting the environment, counterintuitive as that sounds. And no, it’s not just the unanswered questions about recycling the fancy batteries in the Prius when they fade. Read on…  read more »