Impervious to a carbon price? The myth of transportation and carbon fees

carbon taxes

Impervious to a carbon price? The myth of transportation and carbon fees

By Jonathan Marshall

More than 3,500 U.S. economists, including 27 Nobel laureates, insist that carbon taxes offer “the most cost-effective lever to reduce [greenhouse gas] emissions at the scale and speed that is necessary.” But leading news and opinion platforms, including the New York TimesForeign Affairs, and, continue to publish nay-sayers who insist the experts are wrong, especially when it comes to transportation. Their common refrain is that transportation is all but “impervious to a carbon price” because drivers have few options to cut back on trips, take public transit, or buy cleaner fuels.

If true, the case for carbon taxes would be seriously weakened, since transportation accounts for about 30 percent of energy-related CO2 emissions in the United States. Fortunately, drivers have many more options—and are thus more sensitive to price incentives—than these doubters claim.

Most of us could take fewer and shorter discretionary trips if fuel costs began to bite more. By avoiding excessive highway speeds, driving 60 rather than 70 mph, we could burn about 15 percent less gas. More of us in urban areas could and would use public transportation or carpools if the cost of driving alone increased enough. Over the longer term, during past oil crises and even in the early 2000s when gas prices were high, most of us have considered buying more fuel-efficient vehicles. Fed up with long commutes, some of us are even moving closer to work.

Rather than speculate about such matters, empirical economists have discovered that drivers are several times more sensitive to fuel tax hikes than to ordinary market fluctuations that drive up prices at the gas pump. (That may in part be because drivers realize taxes rarely drop back down.) A 2009 study determined that raising gasoline taxes just 10 cents per gallon (equal to a carbon tax of about $10 per ton of CO2) cuts automobile carbon emissions by about 1.5 percent. That’s not much, but a gasoline tax of $1, still well below European and Japanese norms, would have a real impact.

Their calculations may be conservative. Economists at the University of Ottawa estimated that British Columbia’s modest carbon tax, first imposed at a rate of C$10 per ton of CO2 in 2008, slashed gasoline demand more than 12 percent by the time it hit $25 per ton of CO2 a few years later. Over the first four years, they calculated, the provincial carbon tax reduced emissions from gasoline consumption by more than 3.5 million tons of CO2.

Carbon taxes will have to climb a lot higher to drive the world to a zero-carbon future, but these examples suggest that measures like the Energy Innovation and Carbon Dividend Act would have a major impact on transportation emissions in just a few years. Carbon fees are also better than most alternatives when it comes to this task. National fuel economy standards, for example, cost somewhere between six and 14 times more than carbon fees per ton of CO2 avoided, according to a 2013 analysis by researchers at MIT. That’s because they narrowly target only new vehicles, not existing vehicles or the behavior of drivers.

Economists also agree that the long-run impact of fuel or carbon prices will be much greater than their short-term estimates, as drivers respond by buying more fuel-efficient vehicles. That’s all the more true today, now that consumers have a plethora of options to buy highly efficient electric vehicles, with EPA ratings of more than 100 miles per gallon equivalent. Even better, they can be powered by clean wind and solar generation.

“The promise of high future carbon prices on vehicle emissions would spur private sector investments in clean vehicles technologies and infrastructure,” observes Columbia University energy economist Noah Kaufman. “As low carbon transportation alternatives continue to improve and become more viable substitutes to gasoline-powered vehicles, more consumers will change their behavior due to the price changes caused by the carbon tax. Already, for example, lithium ion battery costs for electric vehicles have fallen almost 80 percent since 2010, and are expected to fall much further. . . [A] carbon tax layered on top of the current gasoline tax may achieve larger emissions reductions than we once thought.”

Jonathan Marshall is author of “Are Carbon Fees Effective for Reducing Emissions in Transportation?” a paper available on CCL’s Economics Policy Network Action Team homepage along with many other economic articles helpful for climate advocates.