On Streetsblog, Charles Komanoff makes a number of great points about the low price of gasoline driving more C02 emissions, and endorses Congressional proposals for a carbon tax on the order of $100/ton, which would raise gasoline prices by about $1.00/gallon.
Elsewhere Komanoff says, “the climate problem cannot be solved without carbon emission fees,” by which I think he would include a tax on the purchase of carbon or of any carbon-based fuel. It’s a relief to see this candor, and I wish it would percolate into our political discussions, both in California and in other states. (This has to start at the state level, for all the obvious reasons).
But I would disagree with Komanoff’s approach, at least as he’s expressing it here. A carbon tax that triggers a one-shot increase in gas prices by $1.00/gallon will reduce demand for gas modestly at most. Moreover, it doesn’t seem to acknowledge that declining wholesale prices that could more than offset the price hike from a tax. Somehow when gas is $1.95 a gallon, as it is now, going to $2.95 doesn’t seem like such a big deal, even if you’re buying that new Ford F-Series truck.
The entire discussion on carbon emissions in the transportation sector has the fatal flaw of thinking in terms of marginal analysis. The otherwise thoughtful Komanofff has an extended takedown of opposition to carbon taxes that—while on-target on the whole—fatally relies on marginal elasticity estimates to model the effects of large changes in prices and demand. Sorry, Finn, but the Force doesn’t work that way.
To get to this target, or even close, the policy goal should not be a gas tax or a carbon tax, but a minimum price on gas (or carbon). Set the tax at whatever level it needs to be to keep the price above some threshold. Even better, if the threshold rises gradually over time, it gives everyone the time and predictability they need to adjust, and reduces strain on the economy. I would suggest starting with a gasoline floor price of $2.00/gallon, rising by 20 cents a year for the next 20-50 years, but obviously other possibilities would work, including a rising floor price on carbon. The main point is to pre-commit to something that prevents the price of carbon emissions from going down, no matter what happens in the market.
In transportation, it is essential to keep gas prices high enough so that as electric travel becomes cheaper, it isn’t chasing gasoline prices downhill, in a perpetually losing competitive battle. The higher the floor price on gasoline, the sooner it will become obvious that electricity is the new standard transportation fuel.