"But if elasticity is low then it is unlikely that it will be enough. You are not saying this makes a carbon tax more important than public investment or regulation, are you? It actually seems to support my point, that a carbon price is reinforcement for public investment and regulation."
Yes i should have been clearer. I think they are equally important but need to be implemented in tandem with each other for things to really be an effective counter to climate change. From my analysis of the political and economic issues involved I lean towards enforcing current regulations and beefing up penalties in addition to whatever enforcement and oversight is necessary for a carbon tax (remember that a regulation is really just an intermittent carbon tax without more stringent punishments then fines). I think the public investment portion (and the conversion to clean energy by government infrastructure to really create a clean energy market) is the more important policy to combine with a carbon tax. I envision it as a kind of pincer movement where public investment and government use of clean energy backs the destructive energy sources into a corner and a carbon tax keeps them there by preventing them from devastating the environment even more in a desperate attempt to regain market share.
I also want to emphasize that carbon taxes give a concrete footing for international trade arguments about using article 20 of the general agreement on tariffs and trade to justify imposing a tariff on imported goods equal to the increased cost that would have been paid in carbon taxes if the product was made in the United States. This gives an outlet for starting international corporate compliance on climate change without the need of an official stringent international agreement (if anyone things I'm misinterpreting GATT please correct me).
http://www.wto.org/english/docs_e/legal_e/gatt47_02_e.htm -- -Nathan Tankus ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------