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Gas Price Worries and Climate Myopia

by Michael Levi
April 28, 2011

Dan Esty and Michael Porter say that high gas prices are a “reminder that our dependence on oil carries a great cost”. They argue that “what we really need is to address the full set of energy-related problems, with a focus on spurring clean energy innovation”. And, writing in the New York Times, they have a solution: a carbon tax.

“The best way to drive energy innovation would be an emissions charge of $5 per ton of greenhouse gases beginning in 2012, rising to $100 per ton by 2032…. In tackling our trade imbalance, budget deficit, competitiveness challenges and oil-related vulnerability — not to mention climate change — our plan has a powerful logic.”

Actually, not so much.

This is all pretty simple. A $100 carbon tax would add a dollar to the price of a gallon of gasoline. Would Esty and Porter have written an op-ed claiming that we should solve our oil problems by hiking gas prices by a dollar in 2032? Of course not, because it would have been transparently unpersuasive. By calling for a carbon tax, they’re able to use numbers that no one understands, and thus pretend that their plan would have a much bigger impact than it actually would.

I’d be remiss if I didn’t flag the one place where the authors attempt to bridge this gap:

“In the short term, an emissions charge would create a major impetus for a move from oil and coal to natural gas, with its much lower carbon content. Gas would likely become the preferred fuel for new power generation, and by extension, for transportation, as electric vehicles become cost-effective alternatives to internal combustion cars.”

But why will people switch to electric vehicles? In this telling, it doesn’t appear to be their carbon tax. Yet if people switch to electric vehicles without a carbon tax, then the oil dependence problem will be solved – without a carbon tax. You can’t have it both ways.

[UPDATE: A commenter suggests that, yes, it is the carbon tax. Perhaps I was being too generous in trying to find a place where they made the link to oil consumption. Someone still needs to explain to me why a $1 gas tax will incentivize a wholesale shift to electric cars, when there are approximately zero economic models that agree.]

These are very smart guys. The puzzle for me, then, is why they believe what they’ve written. I can’t help but think that there’s a case of climate change myopia at work. A big slice of the political spectrum has been so invested in identifying climate change as the ur-energy problem that whenever another energy problem arises, they look to climate policy for a solution. High gas prices? Carbon tax. Oil revenues flowing to Iran? Cap-and-trade. People driving gas guzzlers? More wind and solar. No one is stopping to ask a pretty basic question: are these policies well suited to the problems they’re being newly touted for? Don’t get me wrong: I’m all for strong climate policy. But if people who invoke climate policies as answers to our other energy woes really take those other energy problems seriously, they’ll start proposing solutions that actually do something about them, rather than trying to sell climate policy as something it’s not.

Post a Comment 3 Comments

  • Posted by Jeff Wishart

    Michael,

    I don’t understand your logic here, so maybe you can help me out. Your second-last paragraph mystifies me. The authors are saying that the carbon (or GHG) tax will incentivize consumers to shift to EVs, not necessarily because of the current costs associated with the tax but because of the knowledge that the costs will increase as the tax increases. So it is the carbon tax that causes the change. So I don’t understand the flaw that you see.

    [ML: I guess I never considered the possibility that they believe that the eventual $1/gallon change in gas prices will create a wholesale shift to EVs. It's economically implausible.]

  • Posted by Jeff Wishart

    Michael,

    Sure, $100/ton may not, even though it seems pretty large right now. I am glad you translated that into a $/gallon change, because that is much more tangible.

    But let’s give the authors the benefit of the doubt here, and suppose that they thought that in 2032 that $100/ton would result in a very large increase in the cost of gasoline–large enough that it would create a significant disincentive to owning/buying an ICE-based vehicle. The criticism shouldn’t be their objective, just their math. If the increase in the cost/ton was set at something that actually gives such a disincentive (but still gradual enough not to drastically harm the economy), the thesis makes sense, no?

  • Posted by Eli Rabett

    Assuming your calculation correct, we sort of know the answer because of higher gasoline taxes in Europe and Japan, and the answer is that a lot less gas is burned, most because fleet mileage is better.

    OTOH, take a look at the Larson plan. $15 ton CO2 today, going up $10/$15 per year

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