Repeat After Me: Cost-Effectiveness

Someone named Willis Eschenbach has a blog post arguing that a carbon tax is “crazy” because it will have a negligible effect on how much Americans drive. He observes that the carbon taxes he’s “seen discussed are on the order of $20-$30 per ton” of CO2, and calculates that a tax of $28 per ton equals about 25 cents per gallon of gasoline.

He further calculates that increasing the cost of gasoline by 25 cents reduces per capita driving by about 100 miles per year. Since Americans drive an average of about 10,000 miles per year, this is only 1 percent. “They want to impoverish the poor for that?” he asks.

There are several errors in his analysis, but when I tried to point them out in comments I got lost in an effort to enter a valid on-line name and password. So I’ll just discuss them here. First, let me say that I’m not convinced that anthropogenic climate change is serious enough to warrant huge changes in our society. But if I were, a revenue-neutral carbon tax would be the most sensible change.

Eschenbach’s most important error is his implicit assumption that the best way to measure the effects of a carbon tax on greenhouse gas emissions is by the number of miles of per capita driving. In fact, I’ve argued for years that reducing per capita driving is not a cost-effective way of reducing greenhouse gas emissions, and Eschenbach’s analysis reinforces that: large reductions in driving would require much higher taxes than most analysts believe are necessary to reduce emissions.

You can see Eschenbach’s error in his very first graph, which he takes from someone else’s blog post advocating a carbon tax. The graph compares “per capita tonnes petroleum equivalent” with fuel prices in 21 countries. Eschenbach immediately translates “petroleum equivalents” to “miles driven,” but this fails to account for differences in the average fuel economies in different countries.

Eschenbach derides this chart, saying that of course people drive less in Japan and Europe because countries there are smaller. But there are no border restrictions in Europe, which is roughly as big as the United States, and many people cross borders for jobs and other reasons.

On the other hand, Iceland is a relatively tiny country, yet it has the second-highest rate of per capita driving in the world: the average Icelander drives 75 percent more than the average European and 36 percent more than the average resident of the most auto-intensive European countries, which are Finland and France (see p. 103). Iceland’s driving habits are obscured by the chart Eschenbach shows because Iceland’s cars are apparently much more fuel-efficient than those in Australia, Canada, or the United States.

So the first thing to note is that higher fuel prices can have a greater effect on what people drive than on how much they drive. Only by ignoring this effect can Eschenbach pretend that carbon taxes will have little effect on greenhouse gas emissions.

Even making cars more fuel efficient is not necessarily a cost-effective way of reducing carbon emissions. The McKinsey report found that a lot of things are far more cost-effective than making cars more fuel efficient. These included making buildings’ heating and lighting more energy-efficient; improving electrical generating systems; using cellulosic biofuels; and improving agricultural methods. To this list I would add traffic signal coordination and other highway improvements that save energy by reducing congestion. Given a carbon tax, all of these things would happen before we would expect any significant reductions in driving.

If you really believe climate change is a problem, and you really believe reducing greenhouse gases is the solution, then you would want to adopt a policy that finds the most cost-effective way of reducing greenhouse gas emissions. Reducing miles of driving is not cost=effective, so it is not surprising that a carbon tax won’t have much of an effect on driving. But it will have an effect on those policies that can reduce emissions at a low cost, which should be the goal. A carbon tax is the one policy that would guarantee that cost-effectiveness, and not political power, determines how we address greenhouse gas emissions.

Could it be that Eschenbach really doesn’t care about carbon emissions and climate change, but that his real goal is to reduce per capita driving? I have no idea. But at least two states–California and Washington–have passed laws that specifically direct planners to reduce per capita driving in order to reduce carbon emissions, no matter how cost-ineffective this policy is. So I wouldn’t be surprised if people like Eschenbach really are using climate change as a vehicle for reducing other people’s mobility.

But why does Eschenbach think that a carbon tax will “impoverish the poor”? He explains that it is because carbon taxes are “regressive.” But they are not. The rich drive more miles than the poor; they use more energy than the poor. So they will pay more carbon tax than the poor.

Eschenbach then states that there is two kinds of driving, which he calls “fixed” and “variable.” (He’s using these terms incorrectly but I’ll stick with them.) The fixed driving we have to do; the variable we want to do. He assumes most driving by the wealthy is variable, so it will be easier for them to respond to carbon taxes by driving less (isn’t that what Eschenbach wants?). However, since he assumes most driving by the poor is fixed, he figures they’ll be screwed by a carbon tax.

But what about all those transit systems we are subsidizing so people have alternatives? Eschenbach has to ignore transit in order to justify his claim that driving by the poor is fixed.

I have to roll my eyes any time someone objects to any policy because of its effects on the poor. Any policy that imposes costs on society is going to impose costs on the poor (which means someone will always use the poor as justification for their objection). If you really cared about the poor, you could always make special exceptions–for example, by giving the poor carbon stamps, similar to food stamps. But how we treat the poor and how we treat the environment are two different questions that should not be conflated. (“You can’t protect the environment; it hurts the poor!” “You can’t help the poor; if they get rich, they’ll hurt the environment!”)

The first rule of government planning is that economic systems are too complicated to plan, so planners oversimplify. By equating per capita driving with greenhouse gas emissions, Eschenbach has greatly oversimplified the problem. The good thing about markets is that they can solve complex problems a lot better than political systems. That’s why a carbon tax would make more sense than any political effort to reduce emissions.

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27 thoughts on “Repeat After Me: Cost-Effectiveness

  1. metrosucks

    But at least two states–California and Washington–have passed laws that specifically direct planners to reduce per capita driving in order to reduce carbon emissions, no matter how cost-ineffective this policy is.

    And Oregon probably has some sort of shadow “policy” to the same effect. Major metro areas in both Oregon & Washington have perfected timing their traffic lights to where when you drive at the speed limit, expect to hit a red light at over 90% of traffic lights on your route. The embedded loop detectors that were initially invented & used to optimize signal timing are now used to impede traffic to the maximum possible. Keep in mind that this very sort of nonsense was discussed by planners in their own papers.

    Bearing these sorts of insulting social engineering attempts in mind, we must realize that no matter what planners try, any reductions they achieve will be so minuscule as to require an electron microscope to analyze. People desire the convenience, safety, and comfort of driving their own personal vehicles, no matter what some asshole in say, Aurora CO decides they should do instead.

    Planners love to pretend that they are unbiased and merely want to model their plans to conform to “revealed truths” (such as so-called man-made climate change), but the reality is that government, and the thugs working for it, have huge biases, not the least of which is creating new rules to increase their power, and new impediments to people’s use & enjoyment of their own property.

    If liberal assholes want to place a tax on “carbon”, I say we tax their farts and their personal breaths, too. Given the enormous utility of automobiles and trucks, on one hand, versus the very small social cost of the same, on the other, it’s difficult to see how society is somehow suffering crippling handicaps because I don’t pay an extra quarter a gallon to go into some bullshit government enviroslush fund.

  2. LazyReader

    Environmentalists argue the ultimate problem is people. Too many? That’s nonsensical as the UN Population Division’s own figures show that by 2020, that population is set to stabilize and then drop dramatically after 2050 and indeed that underpopulation is going to be the real long term issue and that’s gonna have severe economic repercussions. As the Economist reported, “Fertility is falling and families are shrinking in places— such as Brazil, Indonesia, and even parts of India—that people think of as teeming with children. As our briefing shows, the fertility rate of half the world is now 2.1 or less—the magic number that is consistent with a stable population and is usually called “the replacement rate of fertility”. Sometime between 2020 and 2050 the world’s fertility rate will fall below the global replacement rate.”

  3. Jardinero1

    All the talk of carbon taxes relies on premises which are basically fallacies. The foremost of which is that the tax code is an effective way to limit bads, that bad in this case being CO2. Another rationale for taxing bads if to price in costs that the bad creates but no one is paying for. Some things to bare in mind when talk of novel new taxes on bads arise:

    1. The primary purpose of taxation, is not to modify behavior, but to provide revenue to the state. This concept is lost in the conversation about taxes. Revenue should be obtained in the fairest most transparent form possible.

    2. The science is not settled, that taxes are an effective way, to control behavior. There is little real world data which shows that taxes modify behavior in knowable, predictable ways and much real world data that taxes create unknowable unintended consequences. Every tax has unintended consequences which, by definition, cannot be known until after the fact. How can you measure the efficacy of a proposal if you don’t even know the consequences? A regulatory/legal solution will be more expedient and maintain the focus on the bad itself. This is how we handle most of the bads in our society. We don’t tax murder, we punish murder. We don’t tax theft, we punish theft. We don’t tax littering, we punish littering. Pollution is more akin to littering.

    3. It is only an assumption, not a fact, that a bad, is in fact a bad.

    4.Assuming, for the sake of argument, that a bad is a bad; it is still another assumption that the cost of the bad is not already priced in.

  4. Dan

    Environmentalists argue the ultimate problem is people. Too many? That’s nonsensical as the UN Population Division’s own figures show …

    Yes but the UNEP has great concerns over the sheer numbers of people and their consumption. EO Wilson was asked about the Earth’s carrying capacity and he replied he thought the number was about 200M if they all consumed as much as the US or Japan.

    Nevertheless, I guess markets don’t work if we can’t signal via pricing. Who knew?

    DS

  5. msetty

    Dan Spaketh:
    Nevertheless, I guess markets don’t work if we can’t signal via pricing. Who knew?

    No, Dan, “markets don’t work” only when the results are contrary to what many of those arguing here don’t like and don’t support their “arguments”…

  6. Dan

    An erroneous conflation of market failure and inelasticity of demand.

    So you are saying I claimed price signals are market failures, or price signals don’t work because….demand is inelastic?

    Why would I make such a claim?

    Nevertheless, Randal’s argument is that price signals don’t work. Who knew?

    DS

  7. Frank

    Perhaps I misinterpreted your statement and thank you in advance for your clarification of:

    “Markets don’t work” = market failure?

    “if we can’t signal via pricing” = people will continue to purchase gas given price manipulation? And who is the “we”? Central economic planners?

    But is the market truly not working or is the demand for gasoline simply inelastic? Or do you see inelastic demand as a sign of market failure?

  8. MJ

    I suspect that Eschenbach’s overall argument is that he thinks a carbon tax is unnecessary. The points he presents in support of this view are not terribly convincing, though.

    It doesn’t make much sense to argue that a carbon tax is de facto undesirable because it doesn’t greatly reduce driving. The major argument for a carbon tax versus other carbon reduction schemes is that it is economy-wide, and thus does not restrict the policy’s effect to just the transportation sector (which is not the most cost-effective source to focus on in terms of reducing emissions anyway — electric power is much easier). Also, as Randal points out, the effect of the tax in the transportation sector is much larger than simply reducing VMT because of its influence on vehicle fuel economy, which dwarfs any VMT effect.

    The argument about “fixed vs. variable” driving is conflated. Some trips are discretionary, but a carbon tax is not more likely to affect higher-income drivers, since they are less price-sensitive. Lower-income drivers will face larger tradeoffs and hence will be the ones more likely to reduce their driving in the face of a higher tax.

    Lastly, it seems Eschenbach is using the poor as a straw man for his anti-carbon tax stance. As Randal points out, it is not too difficult to adjust these types of policies to lessen the impact on the poor. Poor people end up being used as pawns to thwart a variety of policies, often by people who otherwise couldn’t care less about them. That, to me, is disingenuous and frankly disturbing.

  9. C. P. Zilliacus

    Folks, if we really want to reduce carbon emissions generated in the United States, there’s a relatively easy way to do that without social engineering, without Smart Growth, and without new and expensive passenger rail transportation systems (and I am not saying that these are especially cost-effective at reducing emissions, because they are not).

    Displace coal-fired electric generation (especially older and dirtier burners) with state-of-the-art generation powered by new-generation atomic reactors, which are nothing like the reactor and plant designs that failed at Three Mile Island and at Fukushima (a Chernobyl-style reactor would never be licensed outside of the former Soviet empire).

    Not only do nuclear reactors reduce CO2 emissions (they don’t produce any when operating), they also reduce the emissions of nastier things that there is nearly 100% consensus are bad for the environment, like SOX (sulfur oxides), NOX (nitrous oxides) plus PM10 and PM2.5 (particulates). And unlike wind and solar-powered generation, nuclear generation works very well to provide baseload electric power generation.

  10. metrosucks

    Anyone who thinks that Carbon Dioxide is a pollutant should stop exhaling it. I tried but I kept passing out.

    Well, Dan and msetty are obviously not carbon-based life forms. I think they are subsidized transit based lifeforms.

  11. Dan

    Frank, I don’t know what all your typing meant. If markets don’t respond to price signals, then humans must have been displaced by robots or something.

    Of course behaviors change in response to signals. That’s how the brain works.

    And we see it here and elsewhere: one of the largest oil companies in the world opposes a carbon tax, so here we are now. And they also oppose competition from renewables. So much so they are now opposing one of the TP’ers they elected.

    DS

  12. Frank

    “If markets don’t respond to price signals, then humans must have been displaced by robots or something.”

    Demand for gasoline is very price-inelastic, especially in the short term. I don’t understand the source of your confusion. Consumers respond to price signals by bitching about them while still filling the tank because they still have to get to work, go grocery shopping, take the kiddos to soccer practice, go camping, go to Yellowstone, etc.

  13. Sandy Teal

    MJ and others correctly point out that a broad-based tax like a carbon tax is a good way to attack a CO2 problem. But any proposal that seriously wants to address “global warming” has to make that tax immense, because it has to reduce CO2 by more than half.

    Personally I find disgusting many arguments that people should not drive, but rather should live in dense housing, rely upon public transportation, and ride bikes in bad weather. But I can’t help noticing that most city traffic in the US has one person in cars built for 5 or 8 adults. It is rare to even see a two door car anymore. Moms with two kids “need” an 8 passenger vehicle just to do carpooling vehicles — you can’t just pile 6 kids in the backseat of a car anymore. There a huge amount of vehicle weight being driven just for the occasional time it might be needed.

    I think the Antiplanner has a good argument about how a carbon tax might get Americans to think more about what kind of car to buy rather than how much to drive.

  14. SFinegan

    Antiplanner,

    When I read your post, it is as if you only skimmed what Willis Eschenbach wrote, or you read someone else’s interpretation, there is a disconnect…

    Posting a comment at WUWT requires a valid email and a username, less effort than here.

    The Antiplanner Reply:

    My internet connection wasn’t working well at the time. When it asked for my user name and password, it rejected it several times and in the meantime my comment was lost. My post here was more thorough anyway.

    Just how do you think I misinterpreted Eschenbach’s post? He measured the efficacy of a carbon tax solely on its effect on per capita driving, ignoring all the other effects it would have. I don’t think I misinterpreted anything.

  15. Dan

    Frank, I had no idea that people couldn’t change. That would explain total VMT declining, corporations gaining efficiencies, Energy Star, hybrids, justifications for self-driving cars including gas mileage, Madison Avenue highlighting MPG, Home Depot sales on insulation for attics, switch to efficient hot water heaters…

    I would say a carbon tax would be a disaster here, just like it was in Australia.

    DS

  16. LazyReader

    An Asian peasant who labors through all of his waking hours, with the same tools invented during the Bronze age only to eat a bowl of rice, a South American aborigine who is devoured by piranha in a jungle stream, an African who is bitten by the mosquito, an Arab whose teeth are green with decay in his mouth; These people do live with their “natural environment,” but are scarcely able to appreciate its beauty, too busy worrying about it’s dangers and diseases which may kill them. Mankind could certainly live in the absence of industry with nature and derive all his sustenance from nature; not for very long….Gandhi once said “God forbid that India should ever take to industrialism after the manner of the west… keeping the world in chains. If our nation took to similar economic exploitation, it would strip the world bare like locusts” coming from a man who purposely fasted himself while his countrymen starved non purposely. From a nation whose population was already growing population long before industrialization (interesting how Third World countries have some of the highest birthrates).

    Environmentalism has values, practices and a holiday, so does religion. The difference is environmentalism has scientific principles, if you apply them and there are general concerns that need to be taken seriously and have vast repercussions if ignored. But today’s environmentalists are attached to the New Age and with it comes an array of pseudo scientific mumbo jumbo about eating raw and getting back to nature and getting all of their nutrients fresh from the sun and the soil. As if we consume sunlight and dirt, well sorta we get Vitamin D and minerals. There’s a reason “religious” people are called the flock, because they’re stupid, like minded and will believe anything. “Raw Food cures Cancer, thanks Dr. Gerson!?!” oh wait. And just like religion, it targets children by establishing fear of damnation. No masturbation, you’ll burn in hell — No throwing away that aluminum can, you’ll burn….when the temperature rises another degree. But ignoring the matters; seriously what do other people think of Americans when they hold up their Bibles and say “God created Earth for us to utilize” it is embarrassing to have that level of intelligence and that they’re politically competitive with educated people and it’s sad when the conservative religious refuse to see climate change in it’s simplicity, just see those puddles in Glacier National Park, they used to be glaciers or refuse to think species wont go extinct when a area of rainforest the size of Delaware is burned and bulldozed.

  17. C. P. Zilliacus

    Sandy Teal wrote:

    Personally I find disgusting many arguments that people should not drive, but rather should live in dense housing, rely upon public transportation, and ride bikes in bad weather.

    But that’s how they did it in the Good Old Days (which were not always so good).

    But I can’t help noticing that most city traffic in the US has one person in cars built for 5 or 8 adults. It is rare to even see a two door car anymore. Moms with two kids “need” an 8 passenger vehicle just to do carpooling vehicles — you can’t just pile 6 kids in the backseat of a car anymore. There a huge amount of vehicle weight being driven just for the occasional time it might be needed.

    That is correct. One way to significantly increase the aggregate fuel economy (and reduce CO2 emissions without forcing everyone to drive a Smart car) is to encourage the use of modern and efficient Diesel engines instead of those powered by gasoline. Diesels do cost more initially, but that higher cost (to some extent) gets paid-back by much longer engine life and better fuel economy. I am not suggesting that government should force people into Diesels (though the Obama Administration’s fuel economy standards may have that side-effect), but I wish like heck that the major vehicle manufacturers would offer a Diesel option in all of their large SUVs and pickup trucks – not just the 3/4 ton and 1 ton models, as is usually the practice today. It seems to me a cost-effective way to reduce demand for oil (since most Diesels don’t have to run on fuel refined from petroleum) and reduce carbon emissions, all at the same time.

  18. Frank

    “Frank, I had no idea that people couldn’t change. That would explain total VMT declining, corporations gaining efficiencies, Energy Star, hybrids, justifications for self-driving cars including gas mileage, Madison Avenue highlighting MPG, Home Depot sales on insulation for attics, switch to efficient hot water heaters…”

    All long-term planned changes, which is why the cost of gasoline is more price inelastic in the short term, but is still quite price inelastic in the long term.

  19. Frank

    According to the US DOE, annual total VMT hasn’t really declined that much; it’s more like the growth stopped and VMT has plateaued, thanks to the Great Recession.

    Also, another reason for price elasticity of gasoline is due to the fact that consumer vehicles are a small fraction of consumed gasoline, also according to the DOE:

    This chart shows average annual fuel use of major vehicle categories in the United States. The two factors affecting the average annual fuel use of a vehicle are the average miles per year (correlative) and the fuel economy of the vehicle (inversely correlative). Class 8 trucks, which typically travel long distances carrying heavy loads, consume more fuel on average than any other vehicle type. Transit buses and refuse trucks also use large quantities of fuel since they both log high numbers of miles on average and have relatively low fuel economy. The last four vehicle types are owned by individual consumers, and they each use a fraction of the fuel used by fleet-based vehicles, on a per-vehicle basis

    Seems that rather than switching to Class 8 truck hybrids, which achieve only a 12% reduction in fuel costs, that shipping companies would pass on increases in fuel prices to the consumer, especially in the short term. Replacing America’s 26+ million Class 8 trucks used for business purposes for hybrids isn’t going to happen overnight, if at all. Safe to say the same for most transit buses, refuse trucks and certainly those old dinosaur school buses that haven’t changed in 50 years.

    Fact is that only 4.2% of average annual fuel use is by consumer vehicles (motorcycles, cars, light-duty vehicles, and light trucks), and their changing habits don’t amount to much in the big picture.

  20. PhilBest

    “……..The difference is environmentalism has scientific principles……”

    I disagree completely. Environmentalism claims to have scientific principles, but the movement as a whole is based on either scientific FRAUD, or post-enlightenment religious absolutism.

    Read “The Historical Roots of the Current Ecological Crisis” by the sixties loony environmentalist Lynn White, who BLAMES Christianity for progress that has “damaged the planet” because it swept away pagans “respect for nature” and replaced it with utilitarianism and scientific curiosity, shock, horror……!!

    Modern environmentalism is just as absolutist and anti-progress, as evidenced by the hysteria of its acolytes over any piddly little mineshaft opening that no-one will ever spot unless they fly round in a helicopter looking for it – AND knowing in advance where to look.

    http://www.whaleoil.co.nz/2013/07/outraged-green-taliban-with-a-case-of-the-sad-sniffles-over-3-hectares

    And its hysteria about “landforms” being altered to build new housing to keep housing affordable. When the world is less than 1% urbanised, and marginal farmland all over the first world has been returned to nature in far greater quantities than cities have “sprawled”. Not to mention the land that used to be used to grow food for draft animals was many times greater in quantity than that taken up by “urban sprawl”.

    And its hypocrisy over human co-existence with nature under conditions of LOW density suburban form – humans must be punished for their heresy re nature by being cooped up in apartment blocks.

    Modern environmentalism grants no concessions to free markets and property rights and capitalism for improving the human condition to the point where people can even care about “the environment” – note that they remain silent on the destruction of environments by socialist governments, and the lack of socio-economic progress for people under stone age theocracies. Patrick Moore famously busted up with Greenpeace over this, and over its anti-science stance on numerous issues. Have you read his book, “Confessions of A Greenpeace Dropout”?

    Nor do they grant any concessions to the way free people and free markets discover new substitutes for scarce resources, so coal replaced whale oil and wood, saving the whales and the forests; liquid and gas fossil fuels supplant coal; nuclear and hydro are available to substitute for fossil fuels; and what else is waiting in the wings? Greenies are incurious about all this, demanding great leaps backwards NOW to appease the Gaia Earth Mother.

    Nor do they grant any concessions to the way that the owners of renewable resources PRESERVE and multiply those resources. Have all the world’s cattle been killed off because evil free marketers profligately sell beef to greedy consumers? Has the world’s last Pinus Radiata tree been chopped down by those terrible capitalists described in “The Lorax”? Or the last rubber tree or tea tree?

    I could go on. But environmentalism “scientific”? BAH.

    I think a literal problem with the mentality of most environmentalists is that they are unable to grasp objectively, the actual size of “the planet” in spite of all the scientific aids that are available to them. It might have been possible for ignorant savages at one time to believe that the entire world consisted of what they could see between one horizon and another. However, no-one should know better than us, how truly vast the earth is. The problem is that environmentalists look at images of “the planet” viewed from outer space, and mentally assume it to be a tiny fraction of its actual size.

    If you piled up all the things built by man in one great heap at one location, it would probably not be visible from outer space as an interruption on the curve of the earth’s surface. No mountain is visible in that way now. The misapprehension of the earth’s size leads to all sorts of absurd mantras such as “paving over paradise”, “raping the planet”, and “running out of fossil fuels”.

    I regard “Environmentalism Refuted”, by George Reisman, as a manifesto of enlightenment objectivity versus environmentalist neo-pagan irrationality.

    http://mises.org/daily/661

  21. Craigh

    But if I were, a revenue-neutral carbon tax would be the most sensible change.

    Please do not fall for the “revenue-neutral” argument. It is revenue-neutral only to the government; its effect on business is hardly neutral. Higher energy costs will cascade through industry. Processes that are highly-energy dependent will be curtailed or eliminated.

    The theory is that returning the proceeds of the tax to consumers will enable them to pay for the higher costs associated, but the real effect will be to make the energy-intensive products more scarce or impossible to buy at all.

    The “revenue-neutral” tool is used only by government policy-wonks trying to defend yet another tax.

  22. Sandy Teal

    Philbest-

    There is something very reassuring about a belief system based on “science’, even for me who was still somewhat religious and didn’t believe all the left-wing propaganda. Darwin and Dawkins wrote books that really spoke to me, but I don’t get the hatred of religion that others draw from their scientific works. But we live in a time when mocking Mormons gets awards and mocking Islam is attacked in academia.

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