Central Europe Activ

Evidence on carbon tax from high oil prices

Posted by Dániel Antal on 04/06/08

The high oil prices of 2008 have lead to a similar historical result as in the 1970s: the notorious oil-burner Americans cut back on their carbon-dioxide emission habits. I think this shows that the main source of carbon emission, namely fossil fuels, is price and income sensitive, and if you raise the price, consumption and emission will fall. Correcting the market with a carbon tax will surely reduce emission.

Many observers have pointed out that Europeans have lower carbon-dioxide footprints because they drive less, and drive significantly smaller cars. This is not just a good habit, this is the cause of very high taxes on European fuel, which does not let ordinary Europeans to burn any amount of gasoline. Now that oil prices have soared in America in such a significant way that families start to feel it, the American people responded like Europeans: sale of gas-guzzlers is down, they cut back on oil consumption, and mass transit use is on a 50-year high level.

Image: Eats gas Originally uploaded by =Tom=

Kenneth Rogoff, the eminent former chief economist of IMF and a professor at Harvard makes a good argument in the January issue of Foreign Policy that correcting the price of fossil fuels, such as imposing a high VAT on fuels as a carbon tax is a much better solution to curb carbon emissions than the European ETS system. I think this argument has got several empirical underpinning since the publication of the interview: the response of Americans to the rising fuel prices and the confession of the European Commission that carbon-dioxide emission is actually rising under the EU regime are compelling cases for taxation.

Link: Blogactiv has an excellent Energy&Climate blog.

USA, energy, environment, transport
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13 Responses to Evidence on carbon tax from high oil prices »»

Corina Murafa

Comment by Corina Murafa | 2008/06/04 at 21:40:02

I have been in Hungary a few times, but not enought to understand the pattern of car usage there. However, in Romania - where I come from - public transportation infrastructure is terrible. It is a bit better in other member states, but the new ones (Bulgaria, Romania) and the ones preceding them in the 2004 accession wave have problems with traffic because of infrastructure. With public transportation being uncomfortable and inadequate, people tend to use small cars instead. In addition to this, in former communist countries - with a more aggressive consumption pattern than old EU members - having your own car is a form of social prestige. Thus, lots of people avoiding public transportation and using small cars instead, making the whole picture a lot less environmentally friendly than it should be. How should we handle all this?
Antal Dániel

Comment by Antal Dániel | 2008/06/04 at 22:00:32

I think in order to have an adequate supply of mass transport services you have to allow a competition of service providers. Central European mass transport companies are usually corrupt, misgoverned state-owned monopolies that provide a low quality service for a high price (if you add taxpayer subsidies to the revenues).

On the individual transport side I think taxation is the proper solution. The current fuel prices plus tax are high enough to detain people from more car use. However, many car users in Central Europe evade tax paying, hide their personal car use behind company expenses, etc. Exposing these people to the real cost of car use would help, too.

But in general I am in favor of a carbon tax, something like 200-300 % VAT on the sale of fossil fuels without exemptions. (Though it sounds out of scope, I think this is close to the European effective fuel tax levels).
Corina Murafa

Comment by Corina Murafa | 2008/06/05 at 07:34:11

I am not sure introducing competition between service providers in mass transport would be a solution? What do you do when you have issues of infrastructure (tram lines, metro lines, train lines - that are owned and maintained, which is not too cheap, by one provider, usually half-state-owned), and not simply roads that can be used by many more bus companies? Buses after all are not too eco-friendly… In addition to this, I’ve witnessed what happened when you privatize mass transportation in Latin America. Buses were horrible in Mexico City, with tons of small providers involved in the business. True, one might say opening up the markets to competition should be accompanied with strict quality assurance and control provided by the state. I doubt it would be like this in CE Europe…

Imagine what a carbon tax on fuels would do to all prices in the economy, since producers increase prices for food any time you have a small adjustment in gas prices… An option would be to have a carbon tax on cars, newly bought ones and old ones, not on fuel per se.
Antal Dániel

Comment by Antal Dániel | 2008/06/08 at 10:27:29

All over Europe, and especially in Central Europe when we opened the railways for private users, quality went up, prices went down, and the amount of cargo shipped on railways instead of roads, using proportionally somewhat more than 1/10 of fossil fuels started to rise. In Hungary, the rise was double digit for 3 years after the introduction of competition. (I was responsible for this in the Hungarian government).

I do not think that carbon tax should be imposed on cars. It is not the car that causes the greenhouse effect but the fuel it burns. If somebody has a car that is used occasionally, off-peak hours when there is no public transport, etc, it may cause only a fraction of the every-day heavy user’s imprint. The other thing is that once lorries properly pay for the environmental damage, they will not run back from the stores empty, etc. The rising fuel prices have shown an amazing possibility to save space through better organization in logistic sector. If you gas prices are low, the lorry driver still makes a money with bringing food to the grocery but nothing on the way back.
Nemes Peter

Comment by Nemes Peter | 2008/06/10 at 16:19:14

As for the near future. The biggest emitters of carbon dioxide from transportation will not be the US or the EU, for the reasons stated in your post. The largest emitters will be countries which subsidize fuel, as the people and businesses in these countries do not feel the global market price of oil. One example of this is oil producing countries themselves and not to mention China.
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Comment by ??? ???????? | 2008/07/04 at 06:53:11

thank you (usefull)
Antal Dániel

Comment by Antal Dániel | 2008/07/05 at 18:58:45

Welcome, nice to have a reader from Iran!
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Comment by ??? ???????? | 2008/07/19 at 13:50:38

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Comment by ?????? | 2008/07/19 at 15:05:21

thanks
jhon

Comment by jhon | 2009/02/16 at 07:05:27

Great article about The Evidence on carbon tax from high oil prices , The biggest emitters of carbon dioxide from transportation will not be the US or the EU, for the reasons stated in your post. The largest emitters will be countries which subsidize fuel, as the people and businesses in these countries do not feel the global market price of oil. you can get more information from this.
Anua

Comment by Anua | 2009/02/25 at 16:54:58

We really have to do something about our environnement. Our planet will not survive if we don’t change our habits.
Josh

Comment by Josh | 2009/03/03 at 22:10:19

Good info, thanks for the details and keeping people informed about the carbon tax…
swantonsuccess

Comment by swantonsuccess | 2009/10/17 at 00:28:37

thanks for sharing. great site.