Sunday, May 02, 2010

Could we finally get a Pigou Tax on gasoline now?

Lisa Margonelli in this morning's New York Times.

The Deepwater Horizon spill illustrates that every gallon of gas is a gallon of risks — risks of spills in production and transport, of worker deaths, of asthma-inducing air pollution and of climate change, to name a few. We should print these risks on every gasoline receipt, just as we label smoking’s risks on cigarette packs. And we should throw our newfound political will behind a sweeping commitment to use less gas — build cars that use less oil (or none at all) and figure out better ways to transport Americans.

I think it is safe to say that economists across the political spectrum approve of gasoline taxes. To the extent they are regressive, the revenue they raise could be used to provide better mass transport subsidies for low income people. Maybe now there will be political cover to do something.


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Agentslayer said...

Very interesting post on Could we finally get a Pigou Tax on gasoline, Thanks for sharing with us.

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rjs said...

certainly, some kind of adjustment could be made in the tax code to address the regressiveness of a gas tax, perhaps via the EITC, so that those who have to drive to work could get a tax rebate, so they would not be hurt too badly by a gas tax…the gas tax would be a four-fer beneficial – reduce oil consumption, reduce the trade deficit, reduce emissions, and increase revenues, nearly to the tune of $150B per $1 tax per gal of gas applied...

Mythbuster said...

What size tax do you have in mind? CBO estimated that a CO2 price increasing gasoline prices up to $1.75 per gallon would not significantly affect gasoline consumption in either the short or long term. The reason is that the new CAFE standards will drive reduced consumption without the price increase.

EIA says we consume 138 billion gallons per year of gasoline. So a $1.75 per gallon tax raises $242 billion per year--about $1,900 per household. A pretty big program with no environmental or national security benefit. I can't understand why I should be for it.

rjs said...

Mythbuster: you dont think there will demand destruction at $1900 a year per household? you dont think importing 2/3 of our oil is a national security issue?

Mythbuster said...

rjs: What I think is that CBO is essentially right. Do you have contrary data, or are you just consulting your gut?

Mythbuster said...

rjs: There is going to be demand destruction by CAFE. EIA projects that consumption of petroleum liquids will decline by about 3% between now and 2020 and then increase slowly--not reaching the 2007 level until after 2030.

rjs said...

pretty big assumption that there will be much oil left in 2030; DoE & DoD dont seem to think so:

The U.S. Department of Energy admits that “a chance exists that we may experience a decline” of world liquid fuels production between 2011 and 2015 “if the investment is not there”, according to an exclusive interview with Glen Sweetnam, main official expert on oil market in the Obama administration.
This warning on oil output issued by Obama’s energy administration comes at a time when world demand for oil is on the rise again, and investments in many drilling projects have been frozen in the aftermath of the tumbling of crude prices and of the financial crisis.

Glen Sweetnam, director of the International, Economic and Greenhouse Gas division of the Energy Information Administration at the DoE, does not say that investments will not be “there”. Yet the answer to the issue of knowing when, where and in which quantities additional sources of oil should be put on-stream remains widely “unidentified” in the eyes of the most prominent official analyst on energy inside the Obama administration.

see chart on page 8 for expected 43% shortfall by 2030..

The Pentagon also expects an imminent oil shock - A report from the American Joint Forces Command published March 15 predicts that in 2015, the world capacity for petroleum prouction could be 10 million barrels per day less than the demand. The report of the American Department of Defense (DoD), titled Joint Operating Environemnt 2010 indicates (page 29):"By 2012, surplus oil production capacity could entirely disappear, and as early as 2015. the shortfall in output could reach nearly 10 MBD." 10 million barrels per day (MBD), that represents the production of Saudi Arabia, the world's leading petroleum producer. Such a shortfall, if it should come, would be more than 10 percent of the world demand for crude, which is today 86.5 MBD, and ought to reach 90 MBD in 2015.
source: pentagon joint operating environment pdf:

Mythbuster said...

rjs: "Running out of oil" was supposed to happen at least three other times between when I became an energy company executive in 1972 and now. Maybe this time it will really happen. If it does, and we look back on the carnage, what good will we say a Pigou tax adopted in 2011 did? And what do you think the tax rate should be?

rjs said...

mythbuster: the tax should be at least high enough to even discourage my unnecessary driving...
that'd be at least $3/gal..

Mythbuster said...

So $3 per gallon will take a billion dollars a day out of the economy--even if you assume substantially reduced gasoline consumption. How much would you expect gasoline consumption would be reduced below the CAFE level? In my world, you can't make a business case for any initiative with numbers on both the costs and the benefits.

Mythbuster said...

I mean "without" numbers, not "with numbers. Sorry.

rjs said...

in my world, i dont have to make a business case for an initiative...i believe there will be more important uses than personal transport for oil in the future...and that there will come a day when future generations will shake their heads in disbelief that we actually BURNED this stuff...

RealityZone said...

RE: "when I became an energy company executive in 1972 and now."

It looks like you are still working [shilling] very hard for that "energy" company.
Drill baby drill was alive in 72, and with you guys it will always be alive.
That is until our dependence on fossil fuels becomes the our demise.
BP and the oil Corps will have their "agents" out in full force, to try and defuse this environmental night mare in the gulf.

Mythbuster said...

RealityZone: I left the energy business in 1983. What I haven't left is the idea that anybody who wants to dip into taxpayer pockets (or anybody's pockets) for hundreds of billions of dollars per year needs to quantify the benefits and show his work.

I'm a big fan of increasing energy efficiency to reduce demand. We should be so aggressive with that that refineries will have to be shuttered--and we could if we had the political will. CAFE has been found in several reputable (non-oil-industry) studies to be effective, but I'm persuadable on the gas tax idea if you can overcome with other evidence the evidence I presented. BTW, I have put out this challenge in various blogs from time to time and nobody yet has put up a quantified response.

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