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.
Monday, April 18, 2011
An argument for a gas tax
Wednesday, October 22, 2008
Market meltdowns and the drawbacks of trading carbon
There are valid economic arguments on either side of the carbon tax vs. cap-and-trade debate. If implemented properly, either policy instrument could accomplish the goal of pricing carbon and gradually reducing greenhouse gas emissions.
One common conclusion after the Canadian Liberal Party's electoral drubbing is that a carbon tax will never sell. It is deemed a political loser, because of the public's knee-jerk reaction to any invocation of that dirty little three-letter word. People much prefer the idea of industrial caps on emissions and a market system. Let the market solve the problem, not the government is a common refrain.
Right. How well are our markets do today?
There's a reason that many of the major investment banks from Goldman Sachs on down are in favour of establishing a carbon market. And it ain't polar bears or coral reefs. They see a massive opportunity for profit in trading of carbon permits.
It is incredibly naive to think the same problems that sunk the financial system won't arise in a carbon market. This article from the Wall Street Journal investigating sales of landfill "carbon offsets" on the voluntary Chicago Carbon Exchange offers a window into how profit-seeking would win out over greenhouse gas reductions in a freely traded carbon market.
I'm not against a cap-and-trade system. But we need to wake up and realize that a carbon trading system will be fraught with the very complications that have created and burst financial bubbles in the past twenty years. Traders will come up with complicated derivatives and trading instruments that regulators do not understand. Companies will propose offsets and reduction measures that cannot be guaranteed. And so on and so on.
Sure, a carbon tax may look like a political loser. Given the way lack of regulation and open cross-border financial trading is causing a meltdown of the global financial system, is the really public is willing to open a multi-billion or trillion dollar carbon trading system, not to mention the future of the planet, in the hands of the markets and investment firms?
Call me crazy, but I think the Liberals should save the Green Shift from the shredder.
Wednesday, October 08, 2008
Canadian scientists and economists plead with voters
A group of top climate and environmental scientists from across Canada have released a letter stating that "climate change is the defining issue of our time" and urging voters to "vote strategically for the environment" in Tuesday's election. That means vote for a party advocating a price on carbon. [Update: the Pembina Institute has a great analysis of the parties' carbon pricing policies]
It is a strong, clear statement. I can add only one thing: A vote for carbon pricing and action on climate change is not just a vote for the environment. It is a vote for the economy of the future.
And it is not just scientists. A group of top Canadian economists have released a very similar letter. The economists agreed on key principles:
- Canada needs to act on climate change now.
- Any substantive action will involve economic costs.
- These economic impacts cannot be an excuse for inaction.
- Pricing carbon is the best approach from an economic perspective.
- Pricing allows each business and family to choose the response that is best and most efficient for them.
- Pricing induces innovation.
- Carbon is almost certainly under-priced right now.
- Regulation is the most expensive way to meet a given climate change goal.
- A carbon tax has the advantage of providing certainty in the price of carbon.
- A cap and trade system provides certainty on the quantity of carbon emitted, but not on the price of carbon and can be a highly complex policy to implement.
- Although carbon taxes have the most obvious effects on consumers, all carbon reduction policies increase the prices individuals face.
- Price mechanisms can be regressive and our policy should address this.
- A pricing mechanism can allow other taxes to be reduced and provide an opportunity to improve the tax system.
Friday, May 30, 2008
The time to discuss a carbon tax
It is “Bike to Work week" here in Vancouver. The timing, you might argue, is perfect, and not only because the infamous Pacific Northwest rains have petered out for the summer. Evidence is mounting that we are approaching the elastic part of the gas price equation.
The increase in gas and oil prices – and especially the threat of a continued increase – is beginning to impact North American driving habits.
These are the sort of behavioural shifts that may be encouraged by a tax on the carbon content of fuels. That does not mean that anyone should celebrate the current rise in gas prices. The problem right now is that the proceeds from the gas price increase is going almost entirely to the oil companies (see Salon's Andrew Leonard for a terrific breakdown of the cost of gasoline). This is essentially subsidizing exploration in regions previously deemed unprofitable, in effect opposing the very initiatives necessary to reduce our reliance on oil. If, on the other hand, gas prices had increased because of taxation, the proceeds could go towards public transit, increasing fleet fuel efficiency and alternative fuel development, initiatives that could reduce our reliance on oil and relieve the burden on the public.
Adding a tax based on carbon content of fuels, even a revenue neutral one like that suggested by Canada's Liberal Party, is politically challenging at a time when oil prices are already high. But if we do not add a tax, then the oil companies remain the sole beneficiaries. That's just one reason the time is right to seriously consider a federal tax on carbon as the key part of a carbon pricing policy.
The Liberals floated a trial balloon, presumably to test public opinion and the response of the other parties. The discussion since then has been dominated by politics. There are serious arguments one could make against a carbon tax: you will not find them in the blatantly manipulative Conservative response or, for that matter, the surprisingly negative NDP response. The signs suggest the public is ready to accept a carbon pricing policy. Is it naive to hope the choice - a tax, a cap-and-trade system, or a combination of the two - is based on the policy itself, not the politics?
Saturday, May 10, 2008
Will Canada vote for a carbon tax?
The news came this week, via one of those not-so-subtly leaked trial balloons, that Canada's Liberal Party may advocate a revenue-neutral carbon tax. It may seem like political suicide for embattled Liberal leader Stephane Dion to even casually mention a tax on fuels at a time when gas prices are soaring. The Canadian political pundits I've heard have used the example of the way northern BC communities and opposition parties responded to the BC government's upcoming carbon tax, a tax that will add only 2 to 7 cents per litre at the pump, less than the price of gas increased in the past week at the Esso station down the street from my house!
That's why we need fewer political pundits.
Is there a better time to redirect federal tax code to stress fuels, rather than income? The signals are all pointing in that direction. Cars are outselling trucks and SUVs for the first time in years. Goldman Sachs reported this week that oil could reach $150 to $200 a barrel. Public transit usage is on the rise. A carbon tax on transportation and heating fuels would only further nudge our economy towards higher energy efficiency and lower per capita greenhouse gas emissions. Most importantly, even if 100% revenue neutral the tax will allow the government the political room to direct revenues to programs to further invest in energy efficiency, renewable energy and new technologies.
As for the politics: evidence from the US primaries, where Hillary Clinton's obvious pandering over a gas tax holiday appears to have sunk what was left of her presidential campaign, that people do appreciate honest on the complex issues of today. Dion is in the strange position of being seen by Canadians as "weak, uninspiring and unintelligible" but still more likable than PM Stephen Harper. Voters across the spectrum might just respect Dion more for making seemingly risky and groundbreaking political move of pushing for a carbon tax.
But, hey, I'm no pundit.
