[tsotha]

Personally, I think we should ban the burning of coal (unless the peak oil doomsday guys turn out to be right and we need it to keep society from collapsing). But it needs to be done over a relatively long time period so people have time to adjust.

I'm a libertarian-leaning guy, but charging for externalities has proven to be a mostly unworkable concept. How much is a human life worth? How much is a few years of a human life worth? How much should someone be compensated for a sickness with which they would not have otherwise been afflicted? Let's say we know coal burning doubles the risk of non-smoking-related lung cancer by 10%. When someone gets lung cancer, especially a smoker, how could you possibly determine the sum he's owed by a coal company? There's no way to prove they were even at fault. Should people be compensated for the risk of developing a problem they never actually develop?

And once you start down that road it doesn't end. Coal companies will (rightly) point out nearly every business generates uncompensated negative externalities. This morning I was awoken early by a trash collector. Shouldn't he be compensating me for the noise he's producing? Lack of sleep has a quantifiable negative impact on health. Shouldn't UPS be compensating me for the time I've spent waiting in traffic because one of their vans was double-parked?

[mikeash]

You can charge for externalities without distributing them to the victims on a personal level.

You're right that precisely compensating a lung cancer victim is pretty much unworkable. But the statistics in aggregate are pretty clear, so you can collect that money as a tax without paying out precise compensation to each individual victim. This still produces the appropriate incentive to burn coal only when it's worth the full cost.

Your examples illustrate this principle. Your garbage collector probably has to pay a license fee, and has to obey noise regulations. UPS pays vast amounts of money for parking tickets. These could probably be calibrated better, but we don't just let these companies generate negative externalities at will.