As the Copenhagen summit opens, concerned citizens around the world wait expectantly for an agreement to be signed that would offer a rapid response to climate change. But the agreement is only the first, and perhaps the easiest, part of the solution. Implementing it is the real challenge.

And in the arena of implementation, one “silver bullet” that many countries might consider is a higher gas tax. Not in Europe, where taxes on gasoline are already high and are doing their job in internalizing the externalities associated with the use of automobiles. But in many other countries –the United States, Russia, India, China and Canada among them—raising low gas prices could go a long way toward reducing emissions and meeting Copenhagen targets.

Most OECD countries have relatively high taxes on gasoline. The United States, however, does not. Transportation represents 30% of carbon dioxide emissions in the United States, where nearly 90% of all trips are made by car. Low fuel prices give Americans little incentive to use public transport, even where good transport links are available; and cheap fuel continues to promote the “stretching out” of American cities, which in turn makes Americans so heavily dependent on cars.

A gas tax of $2 per gallon would probably be so unpopular that it would cause anyone who voted for it to lose the next elections. Unless, of course, the tax were “sold” to the American people with careful, clear explanations… and some other tax were reduced to compensate. But a $2 per gallon tax would make a huge contribution to reducing CO2 emissions, unclogging roadways, providing incentives for public transport and research into alternative fuels, and reducing American dependence on imported oil. It could stimulate teleworking, reduce house prices in areas that are a long commute from major cities, get teenagers off the roads… the benefits are endless. It could also help reduce the massive budget deficit. It is estimated that a $1 per gallon gas tax would raise $140bn per year in revenues. That could shave one percentage point of GDP off the budget deficit. A higher tax would do more.

It´s hard to think of a more obvious candidate for the first policy that the United States needs to implement when it comes home from Copenhagen. And not only the United States, but also huge CO2 emitters like India, Russia, China and others who either subsidize fuel use or sell it at very low prices should impose fuel taxes. Forcing drivers to internalize the externality of gasoline consumption could go a long way toward transforming our economies and making Copenhagen targets possible to meet.


http://randomspaniard.blogspot.com 8 diciembre 2009 - 02:42

Totally agree Gayle. I guess this puts you squarely in Greg Mankiw’s Pigou Club (see for example http://gregmankiw.blogspot.com/2009/12/pigou-club-goes-to-senate.html).

Krugman’s urgency regarding cap-and-trade (http://krugman.blogs.nytimes.com/2009/12/07/unhelpful-hansen/) is not justified I argue in my latest post at http://randomspaniard.blogspot.com .

Javier 15 diciembre 2009 - 13:35

“Rapid response to climate change”, “solution”.

You need a very good reason to increase prices and taxes in such a way, and the only way people would accept it is if they are really scared about the reasons that promote it, the “CO2 causing catastrophic global warming”. The small issue is that maybe that is not true at all, and more and more voices are rising that prove that all that money being dedicated to this, is just a waste of time and resources. There is no “general consensus” at all


This is just a political issue.
Much easier to justify new taxes based on all people being scared of the level of the sea increasing, rather than justifying it by other means. Keep the people scared and they will do what you need.

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