Monday, April 18, 2011

An argument for a gas tax

Last Thursday I gave a talk at the annual American Association of Geographers meeting in Seattle. The AAG attracts throngs and throngs of academic geographers from around the world. Frankly, the meeting is so big you need to be a geographer to navigate your way to a chosen talk, the subject of which may very well be a Marxist analysis of neoliberal influence on the map of the conference centre (“the orientation places the economic geography presentation rooms at the top”).

Seattle is just close enough to Vancouver that someone who is busy, or who possesses an unrealistic and slightly delusional sense of what is possible in a fixed amount of time, or, in my case, both, could convince himself to go there and back in a day. I chose to take the bus, rather than drive, because doing so is more energy efficient and would give me the chance to do some work.

The return bus fare was $48 (that’s Canadian $ for those of you scoring at home). It was, I later discovered, a bit of a deal – return fares can run up to $72 or so. That morning, the price of gas at the station near our house was $1.33 per litre (L). At that price, in order for a single-occupant vehicle trip to be cheaper than the bus fare, the car would need to average less than 7.88 L per 100 km (or 30 mpg) on the 458 km return trip from our house to the conference centre*.

You are unlikely to get that fuel efficiency with anything other than a small vehicle or hybrid car, especially given the traffic you can expect to encounter. And that’s not including the cost of parking. If you add in $20 for parking, the car would have needed to average 4.6 km/100 L, or 51 mpg, which is probably only possible, if at all, with a carefully-driven Toyota Prius, a Chevy Volt, one of the older two-door Honda Insights, or maybe Nissan Leaf if you asked the polar bear in the backseat to hold a bunch of extra batteries on his or her lap. Even at the premium, book-at-the-last-minute bus fare of $72, a car would still need to average at least 11.8 L/100 km (~20 mpg) excluding parking costs, or 8.5 L/100 km (27 mpg) including parking costs, in order to best the bus costs. In other words, at today’s price, there is a clear and immediate financial benefit to leaving the car in the driveway and taking the bus**.

At low prices, gasoline is inelastic. The price won’t significantly influence our behaviour. But as prices move well upwards of $1 per L (towards $4 per gallon), the story may change. The last time gas prices reached beyond today’s level there was an increased demand for high-efficiency vehicles and public transit.

The problem, to remove my scientist hat and channel Thomas Friedman, is that the price signal is coming from the wrong place. Right now, gas is expensive because of the price of oil. The proceeds are going to the oil industry – some of that money stays here in Canada, but much of it goes overseas – and inspiring more exploration, which could conceivably lower prices, or maybe to things like CEO bonuses. If the price of gas were high because of a tax, especially one for which the revenue was invested in things like transit, improved automotive fuel efficiency, battery technology and charging stations, wouldn’t we all be better off? I’d guess that the only thing people hate more than paying a premium at the pump is paying that premium to oil companies.

*L per 100 km? What foreign tongue is this you ask? Canada and the metric world measures fuel efficiency as the gasoline required to go a distance, whereas the US and some other nations use the distance you can cover on some fixed quantity of gas. That difference is in itself rather fascinating, and probably the subject of someone’s cultural geography thesis.

** A full accounting would include the wear and tear on your car – with that, the bus wins hands down over any car on the market. I’ve ignored that here because I’m interested in what will most likely factor into the choice of bus vs. car. My sense is that people don’t consider the daily dribbling costs of wear and tear when making decisions. We moan when the mechanic says you need a new fan belt, but don’t think about the prorated cost when going on a subsequent trip. So we’re unlikely to make a decision based on the per km wear and tear. This is just a hunch; I could be wrong.


ScruffyDan said...

Alternatively the revenue of the tax could be given back to us in the form of tax cuts elsewhere. That is my preferred scenario, because it removes the argument that such a policy is just a tax grab, and makes it easier to sell. Especially if the tax refund is done preemptively, as Gordo did when he sent us all (and by all I mean residents of BC) $100 cash.

And finally it is worth noting that in order to significantly reduce emissions the tax would have to be quite high (Mark Jaccard from SFU who advised the BC government on its tax, has said that we may need more than $200/tonne). With out tax cuts elsewhere this would create a dangerous tax burden.

But generally yes, I agree. The case for a carbon tax is very strong. It just makes sense!

EliRabett said...

The l/100km vs. mpg thing even made it into Science a while ago with the claim that mpg overvalued high "mileage" autos because what really counted is how far you can go on a liter, it's a speed vs. distance argument.

crf said...

This snippet on price inelasticity of oil is interesting: