The poisoned carrot of climate policy

Gas prices are down to around $3 a gallon and that’s a disaster. But worse is yet to come.


In the US there is no way to get to meaningful reductions without changing the transportation sector, which accounts for 27% of greenhouse gas emissions.


Strategies to combat climate change can be thought of as carrots and sticks. The carrots are incentives to do the right thing, and the sticks are punishments for continuing to ruin the planet’s climate.


The recent international climate change summit in Paris resulted in an inspiring and historic accord, but it wasn’t specific about how to get to reduced carbon emissions. So far, it looks like it’s all carrots.


The current strategy is to incentivize non-polluting forms of transportation, especially electric vehicles. These are the carrots. So it is that the Federal Government will kick in $7500 for the cost of your new Chevy Volt (or, if you dare, Tesla), and some states will sweeten the deal further, with additional subsidies, free charging, and a pass to the carpool lane.


But this is a self-defeating strategy.


Demand and supply graph of greenhouse gas emissions
As EVs reduce demand for gas, others will pick up the slack.

The New York Times reported that car sales in 2015 were at record levels, spurred by cheap gas and topped by the biggest gas guzzlers. While sales of the Ford Fusion were up 10%, the Ford F-Series trucks were up 15%. Sales of the Toyota Camry were up 18%, while the Toyota RAV4 were up 39%. Sales of the Nissan Altima, a sedan, were down 9%, while sales of the Nissan Rogue, an SUV, were up 78%. Low gas prices not only encourage people to drive more and further in their existing cars, they also lock in much higher future greenhouse gas emissions.


Gas prices are so low now primarily because of slack demand as a result of weakness in the global economy. That won’t last forever, but if greenhouse gas reduction is to work, it will necessarily reduce demand for oil, which will drive down its price more powerfully than anything we’re seeing now. As we transition away from a fossil-fuel energy system, demand for fossil fuels will crater, and their prices will tank. But as these prices go down, it will become ever more difficult to persuade people to give up their large, gas-guzzling cars and trucks.


The current approaches to transforming our transportation sector—electric vehicles, greater reliance on transit and active transport—are self-limiting, and can never be more than only slightly effective.


The problem is that the fight against climate change doesn’t require slight effectiveness, it requires complete, or near-complete effectiveness. Self-limiting strategies won’t cut it.


How low could gas prices go? Current low gas prices come from oil that costs about $35 a barrel. There is plenty of room for oil markets to go down and still be well above the costs of production. A barrel of oil costs about $14 to produce in the US, about $7 in Russia, and about $5 in Iran and Saudi Arabia. Oil sold as low as one-third its current value could still be profitably produced in great quantities.


The current strategy of incentivizing electric and active transportation is not going to work when gas costs $2 a gallon or less.


To transform our transportation will require not only carrots, but also sticks. Two kinds of sticks are available. We can pass laws to outlaw the use of gasoline and diesel in our cars and trucks, or we can establish a minimum price for gasoline and diesel.


As with any major change, we can plan ahead and allow the tough work to be predictable and gradual, or we can wait until the last minute, when urgency will require sudden and deeply painful measures. A floor price now of, say, $2 a gallon, rising by 20 cents a year for the next 50 years will give consumers the advance warning they need to change their habits—and their cars. Without it, cheap gas will turn electric vehicles into a poisoned carrot of climate policy.

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