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.