The carbon tax is coming, but will it work?

Economics Economics Questions
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1

In Europe, the taxation of fuel keeps prices high, forcing auto manufacturers to market more efficient vehicles as well as laud public mass transit. Currently, a gallon of gas in northern France is over $8 per gallon, while diesel is a tad bit less. I believe nobody can deny the fact that such governmental constraints have forced efficiency in transportation.

Yet alternative/renewable fuel is non existent in the minds of most Europeans. In France, an argument can be made that nuclear energy is dominant, but that has much more to do with their governments insistence. Of course, i am bringing this topic up because i am spending a month in Europe, and this is the main topic of discussion besides Obama.

IMHO, conservation comes at the hands of higher prices of all goods. Even the most conservative Euro’s i encounter claim that a similar tax in the US will be feasible if it is transitioned slowly so to avoid demand pull inflation scenarios.

I am anxious to hear free market views on such measures.

2

I believe nobody can deny the fact that such governmental constraints have forced efficiency in transportation.

What do you consider “efficiency in transportation” to be? Lots of small cars? Well, sure, you can force people to buy less comfortable vehicles by introducing high gas taxes. And then praise yourself while driving in your big Mercedes financed by tax money.

Seriously, though. Can you name any specific benefits?

IMHO, conservation comes at the hands of higher prices of all goods.

I’m curious as to how the world would look like today if our forebears in the age of the Industrial Revolution had farsightedly “saved” the then-known coal deposits so that in hundreds of years, people may still fire their steam locos.

Even the most conservative Euro’s i encounter claim that a similar tax in the US will be feasible if it is transitioned slowly so to avoid demand pull inflation scenarios.

Demand pull inflation scenarios? Please elaborate.

3

I agree with Sphairon, you need to define “efficiency in transportation”. To the extent you are striving to find an efficient level of pollution, a carbon tax sounds to me like a Pigovian tax. This is not an efficient solution because the parties harmed by the externalities of driving gasoline-fueled cars are not the ones getting compensated by the “tax”. It does impose costs on the drivers for their negative externalities… but that only addresses one half of the equation.

4

Epic lulz.

5

Going from point A to point B uses less energy. Please remember, i am only here for the holidays so try not to direct comments towards me personally.

The only things i can think of is less total pollution and less overall energy used (at the hands of higher prices).

When energy prices hit record highs this past summer, conservation was ushered. Otherwise, the Prius and other cars would not have been in back order. There was a great piece in the London Financial Times about oil and the sustainability of its alternatives at different price levels per barrel.

If a tax forced fuel to stay over $5 per gallon instantly, the cost of goods would increase shifting aggregate demand to the right creating an inflationary gap. I do believe that is how Keynesian’s view demand pull, or do i have it backwards?

6

I do not agree with it. Yet nobody can deny the fact that Obama has a congress that will be very supportave of his vision. If the stimulus exceeds a whole trillion, and a significant amount gets put towards renewables, expect a carbon tax.

7

Going from point A to point B uses less energy. Please remember, i am only here for the holidays so try not to direct comments towards me personally.

Sorry, it was not intended to be an ad hominem. All I know is that a lot of political types over here advocate high green taxes for anything, but do not want to give up their comfortable tax-funded limousines. If that’s not the case for you, all the better. :wink:

The only things i can think of is less total pollution and less overall energy used (at the hands of higher prices).

Here’s the deal. You don’t need more than two or three rooms to live well, and you can even enjoy yourself in just one room. Still, a lot of people decide to put their resources into large and ample homes because a lot of living space means more than, say, a big bank account to them. It’s subjective valuation.

By the same token, a Smart will get you from A to B very efficiently. Still, you sort of feel like a sardine in a tin can (at least some people do). Some people might want to drive the GMC Envoy or the BMW X6. They value these higher than, say, a large garden or a business expansion.

Environmentalists then step in and say, “But it’s not necessary!”. Yes, it’s the choice that a society with a high degree of technization and division of labor offers you. But if you think that car driving should be taxed into oblivion to make sure that people only drive the most economical vehicles available, you have no excuse to stop just there. You must continue to tax and regulate housing, holiday travel, free trade (just think of all those emissions that are caused by international transport !) and in the end, even silly little stuff like patio heaters (the EU has been discussing a ban on these lately) or gas cookers.

That’s why I would object, even if you can meet some politically motivated goal with it.

When energy prices hit record highs this past summer, conservation was ushered. Otherwise, the Prius and other cars would not have been in back order. There was a great piece in the London Financial Times about oil and the sustainability of its alternatives at different price levels per barrel.

Well, sure. The price mechanism is a great tool to evaluate present and future uses of certain resources. That’s why we don’t actually need government to tell us what to dig out and what to leave in the earth.

If a tax forced fuel to stay over $5 per gallon instantly, the cost of goods would increase shifting aggregate demand to the right creating an inflationary gap. I do believe that is how Keynesian’s view demand pull, or do i have it backwards?

I’m afraid I can’t answer that one, sorry.

8

Sounds more like “cost-push” inflation, though that’s another loaded term.

9

Yes, this is called cost-push inflation, which coincidently is a myth. There is no way that a “sustained rise in the general price level” can be attributed to the rise in the price of one input. It just can’t happen without an accompanying expansion of the money supply.

10

I can easily come up with examples where smaller and more “fuel efficient” is not more fuel efficient at all. Take any landscaper, they have 1 huge pickup truck pulling a large trailer. The pickup holds gear and people and the equipment and tractors go on the trailer. Now assume that they can not buy the huge pickup, and must buy smaller ones. The landscaper is now worse off fuel wise as he must get two trucks and two trailers to do the work of one truck and one trailer.

Look at manufacturing equipment. Newer equipment is larger and runs faster. It consumes more fuel. If you force people to buy smaller and slower equipment then you force manufacturers to behave with less fuel efficiency.

The exact same concept holds true for personal autos as well. It is only made worse by government intervention. I have a “midsized SUV” upon which I can carry my windboard and bicycles. If I have a smaller vehicle then I will be limited to only one of the two. I am now worse off. And I must either get more bycycles or a windboard at my destination. Or I could use two vehicles or make two trips.

The whole CAFE standars and carbon taxes are nothing but means to control people and make them miserable.

11

As for the Carbon Tax, it will work and make people poorer. In govenrment, more money goes to failure than success. So the carbon tax will be hated and reviled and destroy wealth and not do anything to help the environment. So it logically will get more govenrment funds and power.

12

I am now worse off. And I must either get more bycycles or a windboard at my destination. Or I could use two vehicles or make two trips.

Or you could burn your SUV, buy a bicycle and plant trees in the forests while performing one of the more famous John Denver songs.

And that’s what many of these environmental micro-management programs amount to in the end: change your living habits according to our standards because we are right. Frankly, I don’t like that attitude at all.

13

Yes, i had it a bit mixed up. They usually refer to the increase in global prices as an instance of demand pull, or when goverment begins crowding out shifting pareto.

14

Will a carbon tax reduce the use of fossil fuels and reduce the amount of carbon? Yes. Will a carbon tax damage the economy? Yes, like every other tax. Will a carbon tax be able to significantly slow global warming? No, we would do more by forcing everyone to be vegetarian. Will the benefits of slower global warming outweigh the costs of a carbon tax? No. Is a carbon tax ethical? No, it violates one’s right to self and to property.

15

“The carbon tax is coming, but will it work?”

At reducing global warming? No.

At making nations poorer? Yes

At making life worse for society? Yes

At increasing government coffers? Yes

At benefiting the taxed? No

16

The problem with your argument is very simple: fuel in Europe has never been “cheap”. High taxes were imposed at a time when nobody has ever heard the words “Global Warming” or “Carbon Neutral” and nobody even cared about emissions (the first european legislation regarding vehicle emissions was adopted in 1991). In some countries fuels are still saddled with duties imposed many years ago to pay for “national emergencies”: for example Italy is still paying for a string of natural disasters which hit that Nation-State back in the '60s and '70s. When the government needed cash it just raised taxes on fuels… it was as easy as that! Last time it was to increase the pay of train and bus dirvers.

And another thing. Another piece of legislation which forced Europeans into small cars is the French invention of the “Fiscal Horsepower”: it is pretty complicated actually and has nothing to do with fuel efficiency or overall power. The famous Citroen 2CV takes its name from the fact that it was designed as to pay as little in ownership taxes as possible since it only had 2 “fiscal” hp.

Finally look at the state of italian and English roads and tell you want to drive a Toyota Sequoia around there…

17

Again, i am not arguing for any such thing. Regardless of what the intent is, higher fuel costs have forced people to either pay more, or use either public transportation/ higher efficiency autos. We already have a fuel tax, albiet a small one. While i like where people have been going with their answers, nobody has yet talked about the economic ramifications of such a tax being implemented in the US.

Will it push the US to develop and build infrastructure for alternative forms of energy?

What will be the impact on overall prices should such a tax be implemented?

Will auto makers produce more fuel efficient autos?

Regardless of how we feel about the upcomming stimulus, there is no denying that it will be in the $1 trillion range, an quite possibly exceed it. In an attempt to pay for part of this, I also believe Obama will enact a carbon tax for two reasons. The first as a way to generate even more tax revenue, and the second to protect the huge investment proposed for alternative energy investments. Again I do not agree with these sort of actions, but we must accept the fact that it is an extremely possible scenario. In that regard, identifiying the economic impact is vital to spread the awareness needed to combat the ideas of “big brother” being called upon at the current enormous rate. Couple this with opening up this can of worms, as many of you have described, where future generations will be at risk of behavior modification via taxation, so to appease the percieved problems of the times.

18

No. It has not had this effect in Europe, so there is no reason to believe it would happen in the U.S.

Prices on fuel? They would obviously go up.

They would probably make smaller ones, like in Europe. But why would we need to have them do that? If there is plenty of fuel, than that just seems stupid to me.