Justus For All

Skeptical Optimist has a couple of interesting posts on fuel efficiency here and here.  He echoes some points I have made before, namely that a simple comparison of mpg ratings for vehicles doesn’t really tell you much as far is which is more environmentally friendly.

However, he goes further than I would in a laissez faire direction with this point that he makes here:

The government should not be picking winners and losers.  A tax credit for a Toyota Prius is a crock.  A gas guzzler penalty is a crock.  The market price mechanism will reallocate resources far more effectively than government planners.

As far as allocation of resources goes, I fully agree with him.  However, the focus of his posts is on Global Warming and Greenhouse gas emissions and that is not related directly to the price of oil.  Pollution is a classic ‘neighborhood effect’ and therefore subject to ‘the tragedy of the commons.’  Basically, the ‘cost’ of using a gallon of gas is the price of the gas (which accounts for scarcity of oil, refining costs, etc.) and the pollution caused by the gas.  Primarily, the first part of that is paid for by the user, but the second part, the pollution is paid for by everyone.  Even if I never drive a car, I have to ‘pay’ for the environmental effects cars cause.

A similar, though weaker, case can be made in the realm of geo-political instability.  To the extent that oil prices fund terrorism and fuel dangerous regimes, we all pay that cost.  For now though, I will just talk about the environmental issue.

There is no purely free market way to deal with the costs of neighborhood effects.  Government regulation of some sort is required for this, and to the extend that the penalties applied by government are appropriate to the actual costs incurred this is an appropriate use of government power.

There are numerous ways that the Government tries to do this.  CAFE standards and Tax credits are in there.  For the most part though, these are unrelated to any realistic accounting of costs.  Even if there was some way in which these ‘taxes’ (and both are taxes in different ways) were related to the actual pollution costs, they would be a poor method of equitably putting the costs on those who actually caused them.  As Skeptical Optimist correctly points out in his posts, mgp ratings (which has some correlation to pollution per mile) is very poorly correlated to pollution caused on a daily basis.  A far better solution would be a gas tax, where regardless of what you drive, we charge you for the gas you are using (and hence the pollution you are producing).

Now, figuring out how much is an appropriate tax is difficult.  Since we don’t really have any idea what global warming will cost, let alone how much a gallon of gas worth of pollution contributes to the problem it isn’t easy to come up with a number.  Some of the other pollutants from gasoline are even harder to quantify.  For example, is the ‘cost’ of smog.

That being said, I expect that it would be possible to come up with a reletively fair number.

The gas tax is the only fair means of assessing those costs.  To help with the possible regressive nature of this, I would also propose a yearly tax rebate per individual equal to a certain amount of the tax on gallons of gas.   If you use less gas than the rebate, you will ‘make’ money on the deal, if you use more you will end up paying.

Sadly of course this doesn’t have a chance of ever happening.  Conservatives, by and large, are oppossed to any taxes even if they are appropriate.  Most Liberals would love a gas tax (or any taxes on polluting vehicles) but they are absolutely not interested in assigning a realistic price on these effects, they don’t want to have people pay for their behavior, they simply want to change that behavior.  They tend to prefer heavy handed CAFE style regulation or morality rewarding ‘Prius tax credits’ than an actual economic based system.