Petrol Taxes and Global Warming

We have good evidence that petrol consumption responds to prices, but according to new research from the University of Michigan, the impact of petrol taxes on carbon emissions is pretty small. Here’s the abstract:

Estimating the Effect of a Gasoline Tax on Carbon Emissions
Lucas Davies & Lutz Kilian

Several policymakers and economists have proposed the adoption of a carbon tax in the United States. It is widely recognized that such a tax in practice must take the form of a tax on the consumption of energy products such as gasoline. Although a large existing literature examines the sensitivity of gasoline consumption to changes in price, these estimates may not be appropriate for evaluating the effectiveness of such a tax. First, most of these studies fail to address the endogeneity of gasoline prices. Second, the responsiveness of gasoline consumption to a change in tax may differ from the responsiveness of consumption to an average change in price. We address these challenges using a variety of methods including traditional single-equation regression models, estimated by least squares or instrumental variables methods, and structural vector autoregressions. We compare the results from these approaches, highlighting the advantages and disadvantages of each. Our preferred approach exploits the historical variation in U.S. federal and state gasoline taxes. Our most credible estimates imply that a 10 cent per gallon increase in the gasoline tax would reduce U.S. gasoline consumption by 4% and reduce total U.S. carbon emissions by about 1%. We conclude that there is no statistical evidence that a gasoline tax increase of the magnitude recently contemplated by policymakers would reduce carbon emissions enough to reach the targets described by the United Nation’s Intergovernmental Panel on Climate Change in 2007.

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3 Responses to Petrol Taxes and Global Warming

  1. GA says:

    What a piss-poor study, at least from the summary.

    It is fundamentally deceitful to state that taxing gasoline consumption would reduce “total U.S. carbon emissions by about 1%” without stating up-front what percentage of total U.S. carbon emissions CURRENT gasoline consumption represents. (Thought exercise: if gasoline now represents 2% of carbon emissions, wouldn’t a 1% reduction be pretty damn impressive?).

    Talk about a strawman argument: gasoline taxes will not be enough to reach the targets. Could someone provide a source that made this claim?

    Gasoline taxes were ONE OF MANY measures identified as necessary by various groups and studies – including taxing other sources of carbon.

    And if one will tax other sources of carbon, the classic economic analysis suggests that one should do this at reasonably comparable levels for all potential substitutes.

  2. David says:

    GA, your points are all adressed in the first page of the article, if you read it.

  3. Peter Wood says:

    A petrol tax in the US will reduce emissions by more if there is sufficient public transport infrastructure in place.

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