Can we measure energy prices and taxes?

It seems pretty clear that the long term agreement at Copenhagen will focus on some long term greenhouse gas emissions targets: a reduction of 80% by 2050 for the UK or 50% by 2050 for the world, for example. Such targets, if they are credible, set out long term direction, and have some value. However, there is also a need for immediate action. One such action that could make a big difference is a 'price on carbon', or, equivalently, higher energy taxes. In order to make such changes subject to an international agreement, we will need to measure these prices. if we can measure prices, we can write contracts (often known as 'derivatives') based on these prices. Measuring pre- and post-tax energy prices is a non-trivial task, but is being done by the International Energy Agency. Here I consider how such a task might be accomplished.

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