Tuesday, May 15, 2007

Question asked, question answered

CalgaryGrit asks:
Given that the best way to reduce greenhouse gas emissions and meet Kyoto targets would be through higher gas prices, should the Liberals and NDP really be calling for the government to intervene and lower gas prices?
The correct answer, and one we're going to go through every summer until people wake up, is no, reducing gasoline prices is not going to do anything for climate change. The good news is that it's probably not going to do anything against climate change, or less than you'd think. The demand for gasoline is highly inelastic, meaning a change in price does not force a proportional change in demand. You've also got the fact that fuel is only one, and not the largest, component of the cost of owning a car (insurance is, for most people, significantly more expensive and a "sunk cost" -- they pay it if they drive a million miles or not at all.)

This is why a carbon tax, on it's own, is not particularly useful. (Coal and oil companies will still fight it tooth and nail, even though it won't necessarily reduce their business that much.) Now, a carbon tax where the proceeds are immediately spent on reducing the use of carbon fuels would be very effective indeed, in the medium-to-long term.

1 comment:

Closet Liberal said...

Well it depends a bit. If gas prices were to hit $2 a liter it'd have some effect on consumption.

Even so, an economist (yeah I know, you're favorite type of person) I heard on the radio agreed that gasoline consumption stays static when gas prices go up. However, since net disposable income available after gas goes down, that means we will consume fewer goods.

To my mind that means:
a) less energy consumed in the production of goods no ones going to buy
b) less enery consumed shipping and stocking said goods
and finally c)
less energy consumed by consumers making 5-6 trips to the store to pick stuff up. Now they're more likely to make it 1 trip, if they go at all.

Front end gas consumption stays the same, but back-end energy consumption goes down. Every little bit helps.....