PS. The environment should not be your only reason for choosing or not choosing something to buy. But comparing the price will help you avoid greenwashing.

EMH advocates would say the system is pretty efficient at pricing already; you could argue that the fancier packaging and expensive marketing takes all the markup into account, so when a customer buys, the products are fairly priced, at least in terms of summing up the steps in the value chain. I'm not so sure about that. Tulips, for example.

So at the cheap end of the scale I would tend to agree with you. For brand markup though, I still think the same rules don't apply as well. It is plausible that the higher the price, the less exact the correlation between environmental impact. In other words, intuition says that "environmental cost of a product is almost exactly equal to it's monetary cost" is less and less applicable as price rises noncompetitively, and brand markup and investor exuberance, are such cases.

Oh, I thought of another example. This is just silly: virtual goods. Anyhow your rule of thumb of buying cheap still holds here (the alternative to buying a virtual good is simply not buying, because you have nothing in both cases!). But this is a clear case where you are purchasing a psychological effect. And I would venture a guess that the more psychology you mix into the pricing the less you can infer its environmental cost.

Alright, I'm stating the obvious... nitpicking over semantics I guess.

To your virtual items example:

What determines scarcity and cost? Or more accurately: what is the input into the product to create it?

There are two options here: the items is simply marked up for no reason (i.e. the server releases them rarely for no reason at all), and then the profit situation takes hold.

The other option is that the virtual items are priced correctly, so what makes them rare? (If they were not rare, and priced correctly, then their value is zero.) Usually what makes them rare is the human time spent on making/finding them. Which means that their cost is basically wages, and no different from a real item.

Building a windmill, or solar panels (not sure about geo-thermal) costs a tremendous amount of resources, and energy. So yes, except for CO2 emissions oil actually can be better for the environment. Do please remember that there is more to the environment than CO2. It takes at least 10-15 years for a windmill to pay back it's environmental costs. And for solar panels it's something like 30 years (infinity actually since they don't last that long).

This is actually a great heuristic, but pollution is only part of the story. A more general (and correct) statement would be "excluding externalities (including pollution) the cheaper one really is better for the environment".

Externalities are basically costs or benefits (to society, the environment, etc.) that aren't reflected in the price paid for an item. One really important thing to note is that externalities extend far beyond pollution and can be both positive and negative.

Pollution is one of the more visible negative externalities that get discussed, but there are plenty of others (for example, driving a car involves a host of negative externalities in addition to pollution such as increased road congestion (longer commute times, more fuel burned in traffic, more accidents)).

There are also plenty of positive externalities that often get ignored. Take windmills, solar panels and hybrid cars. The positive externalities associated with manufacturing these items include lower future manufacturing costs for such items (and lower prices and environmental costs as a result) and investment in R&D aimed at making electricity and/or transportation cheaper (both in terms of environmental and financial costs). So even though solar panels may currently be losing proposition environmentally, there are positive externalities that make buying solar panels today (and thereby moving the industry forward) a Good Thing for the environment.

In any case, there's no way to actually avoid all costs being imposed on others from your actions (waste heat, if nothing else), so it's unclear to me what's to be done about it.

Unfortunately, such a simple and effective solution is politically very unpopular, which is why we have yet to see it passed into law. People want to take care of the environment, as long as it doesn't cost them anything. Well, most people anyway.

You could even couple the tax with an offsetting decrease in other taxes, if you're worried about increasing the total tax burden.

I consider those much worse than carbon.

If a pollution tax was implemented I would give the money back as cash to every person in the country. So the money would basically move in a circle, but those who are more efficient will gain.

Well, I'm predisposed against this idea, but that sounds more like an argument for than against it. If everyone's paying in proportion to their cost to others (a big 'if'), then those who cost others less should be paid more than they pay, all else equal.

I agree if you think that global warming is uncertain, or that perhaps we actually want to increase CO2 in the atmosphere, a carbon tax would be a bad idea.