…environmental economics and the implications of environmental policy

A city [Toronto] carbon tax is a flexible way of addressing traffic congestion…and snake oil cures what ails yah

with 10 comments

As soon as we start purporting that emission pricing will solve wide ranging social woes, it is time to pause and reflect (see here for a carbon tax as a snake oil cure).

A city carbon tax would also be a flexible way of addressing traffic congestion, which has almost hit the saturation point. It already costs $15 or $20 to park your car in some parts of Toronto. Why not charge a similar amount to drive it around?

While the carbon tax will “drive” some reductions in vehicle kilometers traveled, we can’t expect much from a carbon tax or emission pricing in the transport sector. Sure, high fuel prices will change some behavoiur in the transport sector, but experience has shown that folks are simply insensitive to fuel prices, especially in the short term and somewhat in the longer-term. This means that carbon prices need to be complemented with vehicle standards, California style.

In the NRTEE modelling, and indeed in most carbon abatement assessment, the transport sector is the last to respond, and one of the reasons why deep GHG reductions result in exponentially rising abatement cost curves at emission prices above $200. The insensitivity to the transport sector to high emission prices is one reason why international trading looks really good and fuel economy standards even better.

So, while a carbon tax or carbon price is a corner stone of effective climate policy, complementary vehicle fuel standards are a necessity to address our collective addiction to the car….

And if you want to address congestion, well then price congestion directly. And if you want to fund social programs, well keep it to yourself and perhaps lets talk after we implement a economy-wide carbon price, collect revenue, have effective tax shifting and revenue recycling and reduce some emissions. Then maybe lets think about diverting some revenue to other purposes.

Written by Dave Sawyer

January 12th, 2008 at 5:50 am

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  1. […] Most roads in the U.S. don’t pay their way: drivers are subsidized to a much larger tune than public transit riders (especially when externalized costs are counted). But it doesn’t have to be that way.Road tolls, parking taxes and congestion pricing can serve a double purpose — disincentivizing driving while generating enough funds to pay for new, comfortable and effective transit services. We can afford a serious shift towards transit, especially since oil production is peaking, and a turn to both dirtier and more expensive fossil fuel sources (coal, tar sands, etc.) seems to be the future of automotive fuels (biofuels not being much of a sustainable option in the near-medium term, for reasons we’ve discussed here before). Given full-cost accounting, transit actually already pays off in a great many urban settings. Alas, a popular policy idea these days, the carbon tax, is not a fix for our transportation woes. Carbon taxes work better over time in changing the incentives as they relate to capital stock turnover, based on what I am reading of the Jaccard et al modeling. Regulating for higher fuel efficiency and tailpipe emissions play a complementary role in here, too, as the press for a set of more energy efficient options for consumers that may not exist in their absence. But carbon taxes are not the best option for reducing driving because demand is so inelastic. […]

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