CO2: Tax now, pay later

Pigou taxation is based upon marginal costs. In the context of global warming, the marginal cost of emissions is a discounted sum of expected marginal damages over an in…finite horizon. We argue that, rather than taxing countries according to their flow of emissions, it would be better to tax them according to the stock of greenhouse gases (GHGs) for which they are responsible. Alternatively, this amounts to delaying taxation of emission flows until damage actually occurs. We evidence that it allows to decentralize the first-best optimum under the very same circumstances a Pigou tax does, while the proposed scheme is based upon current marginal damages and past emissions only.