Talkin' About Energy

TALKIN' ABOUT ENERGY....Over at Grist, Charles Komanoff takes issue with the proposition that gasoline prices don't have much impact on gasoline consumption. He points to this study by Ken Small and Kurt Van Dender which suggests that although the short-run impact of higher prices is small, the long-run impact may be as high as 43%. Thus, a 10% increase in gasoline prices would produce a 4.3% decrease in gasoline consumption (partly due to purchase of more fuel efficient cars and partly due to a reduction in miles traveled). If this is right, it means that a sizeable gasoline tax increase (say, 50 cents a gallon) might eventually reduce fuel consumption by as much as 7%.

Which is great, and it's one reason why I'm in favor of carbon taxes. But this is also a good chance to argue in favor of something else: when it comes to energy policy, we should adopt a broad range of smallish measures instead of focusing on one big one. The problem is that every policy instrument does some things well and some things badly, and there's also a risk that some of them just won't work at all for some reason or another. Better to have your eggs in several baskets, which makes it easier to fine tune the effect you want and also makes it easier to discard policies that don't pan out.

A carbon tax, for example, has some good points. It's efficient, it raises money that can be used for other purposes, and it reduces gasoline consumption. On the other hand, it's brutally regressive, hurting the poor far more than any other group, and even under rosy long-term assumptions it reduces gasoline use only modestly.

CAFE standards, conversely, raise gas mileage very quickly and very efficiently, and don't have a disproportionate impact on the poor. On the other hand, they're a blunt instrument, and if anything, they motivate people to drive more, not less. (It's called the "rebound effect": if your car gets better mileage, it's cheaper to drive. That prompts people to drive more.)

A refundable gas guzzler tax has different pluses and minuses. Like a carbon tax, it can raise money that can be channeled into green research, and unlike a gasoline tax, it's progressive. On the downside, once you've paid the tax, there's no further incentive to actually reduce your driving.

Other proposals, like the low-carbon fuel standard touted by Daniel Sperling in the op-ed I linked to yesterday, have yet other tradeoffs. Ethanol research, nuclear power, and subsidies for renewal electricity generation have others. I say: the more the merrier. All of them have good points and bad, and the more we experiment the more we can find out which ones produce the biggest bang for the buck. Let the games begin.