Yet More Cap and Tax
| Tue Dec. 30, 2008 4:46 PM PST
YET MORE CAP AND TAX....A couple of days ago I mentioned that a generic carbon tax would raise the price of gasoline by only a little bit, and since gasoline use is pretty inelastic this means it wouldn't reduce consumption much. 
Because of this, we probably need more than just a carbon tax if we seriously want to cut gasoline use. David Roberts comments:
Kevin Drum grasps this basic problem, but for some reason the separate policy he favors is ... a higher gas tax.
But if a price signal is blunted by low elasticity, is the best solution simply to jack up the price?....If we are so hell-bent on getting people out of inefficient vehicles — and we certainly should be — why don't we take a more direct route? Why don't we try to directly increase elasticity of demand by creating more low-carbon alternatives? Build the crap out of public transit. Buy gas guzzlers off the road through junker programs. Issue a new ruling that the government will only buy plug-in hybrid or electric vehicles. Raise CAFE standards to 60 mpg and pay the Big Three off with stimulus money (they're probably going to get it anyway).
Just for the record, I pretty much agree. Price signals are important as a backbone policy (you can think of them as sort of like a tailwind that helps everything else along), and since gasoline use responds slowly to price hikes I think a mixed carbon trading/gas tax policy that raises the price of gasoline heavily is a good idea. Still, it's absolutely true that you often need more than just a tailwind. If you want better gas mileage, you can get it way faster by increasing CAFE standards than you can by jacking up the price of gasoline. Getting rid of gas guzzlers is another good idea, and I'm also a fan of a revenue neutral feebate that's based on gas mileage (you get a rebate when you buy a car with exceptionally good mileage and pay a fee on cars with exceptionally bad mileage). There are probably plenty of other good ideas out there too, many of which I haven't even heard of.
Still, generally speaking, taxes and carbon trading are more efficient regulatory mechanisms than command and control, so the more you can rely on them the better. For that and other reasons, I remain in favor of trying to increase carbon prices fairly heavily, and gasoline prices even more heavily. It's true that you have to do this carefully to avoid making the price hikes into a de facto regressive tax, but there are pretty good policy mechanisms available for achieving fairness. It's time to get started.
Continues Below
Continued From Above
Comments
Submitted by Legacy on Tue Dec. 30, 2008 4:40 PM PST.
Aidan: Yeah, but remember that was after five years of rising prices followed by a 50% increase in less than 12 months. And even at that, consumption only dropped about 4%.
In the longer term, elasticity is better, but gasoline costs $8/gallon in Europe and usage is only about a third less that the U.S. when you control for geography and other factors. A third is nothing to sneeze at, but it took a very, very big increase in price even to get that much. We'll never get that with a carbon tax alone, which is why I also favor an increase in the gasoline tax.
All carbon emissions should be taxed the same. For Drum to suggest that car drivers should be subjected to a special carbon tax above and beyond what other polluters pay is to suggest that Drum knows better than the public how they should spend their carbon allowance. Who is it for Drum (or any of the other ruling elite) to decide what sources of carbon are allegedly deserving of a special extortionate tax.
I heard an interesting presentation by a state official from Oregon recently. They've just conducted a trial of these little devices that measure vehicle miles travelled (drivers were logged in at gas pumps). The idea is to model a replacement for the gas tax. That state is quite concerned about the long term erosion of gas tax revenues and has been studying the possibility of replacing it with some form of miles traveled fee. Lots of opportunities for creative policy here. Traveling during peak hours / in urban cores could have different prices, etc.
I don't get the part about CAFE standars being away to quickly increase fleet milage. At bet raising CAFE standards increases the derivatibve of fleet milage with repect to time. But even there, we end up giving manufacturers years to get ready for the new standard. I doubt any politically acceptable CAFE changes will efect fleet milage for several years.
wab: If it was just about carbon, you are right about a uniform standard. But gasoline (and diesel) taxes should also be about our national vulnerability to oil, and about paying for road upkeep -and if we insist on garrisoning the middle east for oil, about the costs of that.
That said, what almost noone wants to acknowledge is thatbdiesel demand is far far more critical than gasoline. When refiners crack oil to make product (gasoline, diesel, jet fuel etc.) the ration of gasoline to diesel is pretty much fixed, and diesel is relatively in much higher demand. We are currently closing refineries in the US, and importing surplus gasoline from Europe, because they need the diesel, and will sell the gasoline at a subsidized price just to get rid of it. So a big part of a rational plan for dealing with our oil dependency has got to make reducing diesel demand a key part of the strategy. But, since most of John Q Public doesn't use diesel, I guess this just isn't politically maningful?
aidan: [Oregon] is quite concerned about the long term erosion of gas tax revenues and has been studying the possibility of replacing it with some form of miles traveled fee. ... Traveling during peak hours / in urban cores could have different prices, etc.
Oh boy, congestion pricing! The ultimate in regressive taxation.
There are good reasons for reducing GHG emissions, and other reasons for reducing gasoline (actually petroleum) consumption in particular, but there is no reason to reduce miles traveled via yet another regressive tax.
Here in NYS they're going to tax soda. Yay, they're looking out for our welfare - not. Just another excuse for yet another excise tax. Heaven forbid that Gov. Paterson suggest a millionaire's surcharge on the state income tax.
bigTom: I don't get the part about CAFE standars being away to quickly increase fleet milage. ... I doubt any politically acceptable CAFE changes will efect fleet milage for several years.
That's true, but any politically acceptable gas tax increase will have almost no effect, as anything other than a trivial increase will result in a second American revolution. And, as Kevin noted, even draconian European taxes have suprisingly little effect. Even if they could be adopted here, they would take years to have as much effect as they've had in Europe. It takes years for people to buy new fuel efficient cars, move closer to their jobs, etc. The only short term effect, as we saw during the recent oil price spike, is small reductions in optional travel.
Ergo, CAFE ain't perfect, but it's probably one of the best alternatives we have.
"The ultimate in regressive taxation"
Well I think the issue is how regressive is the tax system overall. Taxes do different things, and if you take ones that are regressive off the table, you're really limiting yourself.
As an economist would likely say, the issue of regressivity is better addressed through rebates, etc, than directly in the structure of consumption taxes. Or to put it another way, we achieve progressivity though the income tax, not through consumption taxes. That doesn't mean consumption taxes are bad. They're just not progressive.
aidan: As an economist would likely say, the issue of regressivity is better addressed through rebates, etc
Economists say wonderful feel-good things like that all the time. For example, "free trade" should be accompanied by an improvement in the vaunted safety net. One small problem: it never happens.
That doesn't mean consumption taxes are bad.
Consumption taxes only make sense if there's a good reason to reduce what's being consumed. So again, why would we want to reduce the miles traveled? The problems are GHG's and petroleum consumption, not miles traveled.
"why would we want to reduce the miles traveled? The problems are GHG's and petroleum consumption, not miles traveled."
Miles traveled = more fuel consumed.
There are other good reasons for better pricing auto usage. To reduce congestion. To charge closer to a true price in terms of costs related to pollution, etc. If something isn't priced appropriately people will overconsume it.
aidan: Miles traveled = more fuel consumed
Obviously, but a mileage tax overlooks the minor detail that traveling 4 miles in a 48 mpg hybrid uses no more gas than traveling 1 mile in a 12 mpg SUV.
If you want to reduce gas consumption with a tax, then tax gas, not miles traveled. Anything else is just an excuse to impose yet another regressive tax under a feel-good pretense.
There are other good reasons for better pricing auto usage. To reduce congestion.
And what's the reason for reducing congestion? What's the goal? Who gets harmed by it and how do they get harmed? By what other mechanisms could it be reduced?
To charge closer to a true price in terms of costs related to pollution
Then tax pollution, not miles traveled. Is Oregon planning to put a multiplier on the mileage tax so that an electric car recharged by wind power is essentially exempt, while a 12 mpg SUV is taxed to death? Didn't think so. That would interfere with what you said was the primary purpose - raise more tax revenues even if gasoline sales decline.
It is important to distinguish the short-term elasticity of demand for gasoline vs. the long-term elasticity.
If gas prices go up, most people have little choice about how much they drive. But if prices stay up, people have very real choices about what they drive.
An article from an Oregon newspaper:
http://www.dhonline.com/articles/2008/12/28/news/local/1aaa02_road.txt
An obvious point: by transitioning away from a gas tax, they'll eliminate an incentive to reduce gas usage. A 12 mpg SUV owner will pay no more per mile than a 48 mpg hybrid driver. Great incentive structure!
Also, what's the deal with GPS? Why do they need that for a simple mileage tax? Trust us, we really, really, really have no plans to track anyone with that handy tamper-proof GPS receiver (unless of course the public need arises). We're from the government. We would never invade anyone's privacy, would we? Oh, and what do you people that object to this have to hide anyway?
It's true that the own-price elasticity of demand for gasoline is fairly low. The opportunity you are missing, though, is that a carbon tax would introduce huge incentive for gasoline suppliers to switch to renewable blendstocks like ethanol (from cellulosic biomass, not corn), ethers, and possibly biomass-derived hydrocarbons. That could drastically reduce the net carbon emissions associated with fuel use. (And yes, I am aware of the studies saying that cutting down rainforest to grow biomass crops is a bad trade. The right way to deal with that is to charge the people who cut down the rainforest for the carbon that they are releasing.)
Submitted by Crissa (not verified) on Tue Dec. 30, 2008 8:51 PM PST.
The states are starting to talk about taxing miles driven instead of gas.
That's really, really stupid at this point. We know why the right-wingers would sneak this trash in. Aside from make the lefties look nuts to protect civil liberties.
I think CAFE standards should be raised, a lot. Better gas mileage should be built in to the fleet, not an option.
But I'm pretty attached to my gas tax plan, too. Add a dollar to the federal gas tax, thus collecting about $140 billion a year. Then send every American 18 and over a $500 check, whether they drive a car or not. You'd still have $20 or $30 billion lying around to pay for mass transit, supertrains, etc. And send the checks before you start collecting the tax.
"Cap and Tax" is also a decent revenue source for "Rebate and Infrastructure".
Aiden -- Oregon didn't come up with the concept of a mileage tax. The Bush administration has been trying to push it in several states. The test is federally funded and probably includes decent per diem funds for the folks at the DMV. California thought about testing it and the DMV director almost got dragged to the nearest orange tree. Anyway, the white paper was probably written by a trucking industry consortium. I've seen several states spit out the same BS talking points about decreasing gas tax revenues and road damage being unrelated to MPG. Damn Prius drivers are getting a free ride!
California is about to go into receivership because Californians are addicted to excessively low taxes. They seem to believe life is a free lunch. My own state has the lowest gas taxes and gas prices in the nation. People are forever complaining about the bad roads, but no politician has the guts to tell folks that we won't have good highways unless we raise taxes.
The Republicans have such a wonderful job demonizing tax increases that passing dramatically higher gasoline taxes is probably impossible, at least without a National Emergency of the first order. Sorry, Kevin, but command and control might be our only alternative.
Not to beat the miles traveled idea to death, but I probably should have mentioned that the assumption is that the fee schedule would indeed favour fuel efficient vehicles. Obviously a straight forward fee / distance would actually penalize fuel efficiency.
Also, the usefulness of GPS is in tracking where the vehicle is traveling. That way you can charge different fees for travel within cities, for example.
Strict privacy controls would need to be put in. But I imagine there would be a lot of suspicion on this score.
Finally, I would note that many jurisdictions have adopted some variant of road pricing. Not the specific technology proposed in Oregon mind you. But I think folks need to have an open mind here.
Tax gas, tax mileage, tax pollutants.
Why not tax CARS?
Sure, it doesn't address any other sources of GHGs, but it does directly attack one of them, and has the virtue of indirectly(albeit sharply) affecting petroleum imports.
As I recall, in the late 80's and early 90's, Lichtenstein had a 180% tax on automobiles.
Yes, 180% - 1.8 times the cost of the car. I've no idea if that's still the case, and it's a very very small country - public transportation in those circumstances can be comprehensive and convenient.
Obviously, implementing such a tax at such a high rate over a short period would be disastrous economically and individually.
But there's no reason it couldn't be implemented over a 10 or 15 year time frame. That would allow plenty of time for changes in transportation infrastructure, and for consumers to adapt.
Here's a real simple, elegant idea: put a higher sales tax on gas-guzzling vehicles.
If you want to be revenue neutral, then adopt a "fee-bate" structure -- higher sales tax on gas guzzlers, and lower the tax give a tax rebate on gas sippers.
To take this idea a step further, apply it to the annual car registration fee.
What's not to like?
Someone explain to me how a "tax on miles traveled with a fee schedule to favor more efficient vehicles" is preferable to a gasoline tax?
I could, in theory, take my fairly-good-mileage compact and, with a combination of poor maintenance and bad driving habits, reduce its gas mileage dramatically. A gas tax would penalize that. A tax based on my car's theoretical efficiency wouldn't.
Some municipalities in Conecticut put a property tax on cars. Probably trying to stick it to the renters or free up a few parking spaces.
Kevin has discussed the mileage tax before. As far as I can tell it's an inelegant system designed by folks who are hamstrung to simply raise the gas tax. A gas tax is incredibly simple and takes 0 infrastructure to implement. No reason you couldn't design it so a six year old could calculate it. In fact, if you simply taxed crude oil you'd only need one six year old for the whole nation.
Putting GPS units in every car in America and instituting an accounting system would cost a lot. Easily in the 10's of billions with ongoing costs year after year.
aidan: Not to beat the miles traveled idea to death, but I probably should have mentioned that the assumption is that the fee schedule would indeed favour fuel efficient vehicles.
Whose assumption? Seriously, no snark, just an observation that the devil is always in the details. I only read one article on this proposal, but it made no mention of favoring fuel efficient vehicles. In fact the whole purpose seems to be to tax vehicle miles regardless of fuel consumption.
Strict privacy controls would need to be put in [with GPS]. But I imagine there would be a lot of suspicion on this score.
That's putting it mildly. It's like routing all Internet traffic through the NSA with the promise that they'll implement strict privacy controls.
Ok, now I'm beating this to death. And I think that some congestion pricing schemes might even make sense - depending on the details. For example, Mayor Bloomberg's proposed congestion pricing for Manhattan would have been ok if, for example, they put into law that all revenues would be used to improve mass transit. But they refused. Which means that it would just be a regressive tax. No problem for people who could easily afford the $8 fee (they'd get less congested roads), but a serious tax on the peons.
P.S. No personal sour grapes about the Bloomberg proposal, as when I do go into Manhattan during the business day I always take mass transit anyway. Nevertheless, it was a seriously flawed proposal that amounted to "let the peasants walk so the nobility can ride on less congested roads".
"Still, generally speaking, taxes and carbon trading are more efficient regulatory mechanisms than command and control, so the more you can rely on them the better."
Who says? To me this is part of the problem, self-styled 'progressives' who came of age under Reagan (or later) have simply internalized certain aspects of Chicago School Economics and in their own way still have this fetish for market solutions.
I am old enough to remember this country before Earth Day, before the Clean Air Act and the Clean Water Act, before the establishment of the EPA. And the place was filthy in ways inconceivable to younger people today. Lake Erie was a dead lake, possibly because rivers flowing into the Great Lakes were so polluted that they could and did catch on fire (google Cayahoga River). Back when I was growing up you couldn't even see across a metropolitan area. Inn the seventies I had the opportunity to both fly into the LA basin and enter the metro area by sea. In the former case you literally descended into a bowl of brownish-yellow air, the inversion layer being perfectly, visibly delineated. From the sea it was like approaching a big brown wall. And the only reason the SF Bay area was in places in better shape was because of 'night and morning' fog that cleaned the air of SF and Berkeley (but didn't do a hell of a lot for San Jose).
These acts did not achieve the results they did by tinkering with the tax code, instead they implemented a set of policies that said 'Thou shall or thou shall not'.
This tendency to demonize 'command and control' as if there was no difference between a Soviet style 5 year plan or a Maoist 'Great Leap Forward' and the imposition of CAFE standards mystifies me. Sometimes I get the sense that people who should know better go around screaming "If this goes on we'll be no better than SWEDEN". To which I reply 'From your lips to Congress and the Administration's ears'.
In any event 'generally speaking' is just a lazy way of asserting a particular ideological preference, there is no rigor there at all. Can you provide some real world examples which clearly demonstrate superior efficiencies from a market strategy over a regulatory one in side by side situations? Because it seems to me that too many people in this country simply rule out Social Democratic solutions (i.e. Nordic style policies) based on little more than outmoded notions of American exceptionalism.
Submitted by Steven Stoft (not verified) on Wed Dec. 31, 2008 8:59 AM PST.
Why Pricing's So Cheap: Here's why (almost) everyone gets confused by cap/tax carbon pricing. They think: (1) jack up the gas price by 50 cents. (2) not much happens. (3) Uh-oh that's too expensive for what we got.
The Great Cost Confusion Has Struck: Everyone thinks the cost was 50 cents a gallon as if that money went down the drain. No way!! It's not gone at all. How to get it back? Easy. Use The Famous James-Hansen 100% dividend and send it back in the mail, like the Alaska Permanent Fund -- equal per person. This way the total cost is almost nothing. That's why pricing is cheap -- the money is not gone like it is when you subsidize.
Next confusion: If we send it back, people will spend it all on gas. Nonsense -- read about it in my new book: Carbonomics: How to Fix the Climate and Charge It to OPEC. Google "carbonomics" for a free PDF, or buy in on Amazon.
Bruce Webb: To me this is part of the problem, self-styled 'progressives' who came of age under Reagan (or later) have simply internalized certain aspects of Chicago School Economics and in their own way still have this fetish for market solutions.
Hear, hear!
As the old unix saying goes, "if the only tool you have is a hammer, then every problem looks like a nail". Markets are great tools, but so are screwdrivers.
Any of you gas tax enthusiasts live in a rural area? No, I didn't think so. Any of you ever even seen an actual small farmer? No, didn't think so on that, either.
You urban and suburbanites have options. Folks in the country don't. What kind of mileage do you imagine farm tractors and other heavy machinery get? You wonder why diesel consumption doesn't go down, it's because in the U.S., diesel is almost exclusively used for vehicles doing actual work, not optional trips to the mall or the kids' soccer games.
Raising the gas tax enough to get you self-indulgent suburbanites out of your cars once in a while would quickly push the remaining small and medium farms into extinction and completely vacate rural areas of all but very wealthy vacation home owners.
gyrfalcon,
That's a valid point. Any gas tax proposal would have to take the needs of real rural folks, as opposed to pretenders like myself, into account -- through some sort of rebate or exemption program.
But there's got to be some disincentive for me and my non-farming neighbors to drive our Ford Extinctions (or even my little Subaru) so much. Relying on their good sense ain't going to do it.
Markets are great tools, but so are screwdrivers.
Posted by: alex on 12/31/08
In a country of free people we know markets have free people doing things for their own benefit.
In this other scenario you suggest, who's going to use the screwdrivers and who's going to get screwed? Inquiring minds want to know.
Compare the issue of cap & trade to income tax systems! If you want to tax consumption you can tax at the gas pump same as you'd tax at a cash register. But, if what you want to tax is overuse of carbon, then you need some way to specifically focus on that and it isn't going to get done at a cash register. If you want to tax over-accumulation of wealth (relative to everybody else in society) then you don't tax at the cash register. You focus on the thing which you consider a problem -- the huge wealth.
But, there's another thing. Government should regulate and protect and sometimes enable, but a tax on something which is pretty necessary doesn't feel like regulation you could get out from under by buying a different car or using non-existent public transportation. It just feels like an onerous theft by government.
If I have a choice of alternatives which are acceptable, then at least I could change my behavior. Clearly we need more public transportation in some places and lots more alternative fuel vehicles. Governments should probably go first to prime the pump of production.
gyfalcon: What kind of mileage do you imagine farm tractors and other heavy machinery get?
Fuel for ag equipment is generally exempt from the taxes on road fuel.
You wonder why diesel consumption doesn't go down, it's because in the U.S., diesel is almost exclusively used for vehicles doing actual work
Like using trucks instead of freight trains? Just because it's used for actual work, doesn't mean it couldn't be used more efficiently.
Raising the gas tax enough to get you self-indulgent suburbanites out of your cars once in a while would quickly push the remaining small and medium farms into extinction and completely vacate rural areas of all but very wealthy vacation home owners.
First, why would this affect small and medium farms more than large farms?
Second, what percentage of the rural population lives in rural areas because they do work that has to be done there (e.g. farming), and what percentage lives there just because they like it there, grew up there, etc.? I don't know the answer, and would like to hear from anyone who does, but I wouldn't be surprised if the latter category is pretty big.
As such, should people in the latter category be subsidized, or viewed as somehow more noble than suburbanites?
GA-Sen Watcher: time is short: both are needed. but the reason for a rising carbon price is to encourage current producers to work transition plans into their business. with clean-tech subsidies alone, big polluters with low operating costs have some incentive to sit tight.
there's also the matter of those who profit from pollution paying for its mitigation....
