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The high oil prices of 2008 have lead to a similar 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 (fossil fuel) is price and income sensitive, and if you raise the price, consumption and emission will fall. Correcting the market with a carbon tax would surely reduce emission.

Two commuter trains at the Tungelsta Station in the morning.Many observers have pointed out that Europeans have lower carbon-dioxide footprints because they drive less in 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 and the Americans are responding like the Europeans: sale of gas-guzzlers is down, they cut back on oil consumption, and mass transit use is on a 50-year high level. (CC Image: Steffe)

The eminent Harvard economics professor, Greg Mankiw has a superb collection of other market reactions, namely substitution on high oil prices. His ongoing series on cross-elasticity of demand shows how people turn to less fuel-intensive (thus less carbon-intensive) alternatives.

mass transit on Broadway.I guess this is what greens have always wanted. So why not give a permanent lift to the gas price? 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.(CC image: niznoz)

I believe that European emission quota system, which is now embraced by both American presidential candidates, have proven to give too indirect and ineffective signals for burning carbon. The end-user price system is a much more robust and reliable means of giving the right incentives.

Update: Even tall ships may come back to business.

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Comments

  1. You need to be careful of the effect of your words. At a time when the EU is trying to engage Europeans in support of a trans-cultural centralism, your argument that demand destruction is a good thing, will not be welcomed. The people at the bottom of the income pyramid will perceive your words to be paternalistic, elitist and uncaring.

    Demand destruction is definitely coming. It is a geological certainty. As a civil servant with excellent job security, you should show more empathy for the plight of the many who are being hurt as the demand is destroyed.

    Look to demand reduction through legislative means. That is the only effective way to cap energy prices in the years to come.

  2. One substantive and one personal remark: I think redistribution is part of the tax system. Low-income people should receive direct subsidies, or face lower tax burden, but should not be encouraged to burn carbon fuels. Instead, they too should be encouraged not to do so. If they save energy, the pie will be bigger from which you can give them subsidies if you want to.

    On job security: the Labor Tribunal will hear my case for the unlawful abolishing of my civil servant status in October.

  3. >On job security: the Labor Tribunal will hear my
    > case for the unlawful abolishing of my civil
    > servant status in October.

    I am sorry to hear that. I should not have been making assumptions. Re-reading my rebuttal now it sounds a little…strident.

    All the same: Now you want subsidies again? I thought you disliked how this increases consumption. Can you please clarify because it sounds like you’ve changed your mind.

    I think what is most important is to legislate to reduce consumption as this is kinder than letting prices (i.e. the markets) do the job. That is the kind of state intervention which makes most sense to me. What do you think of that?

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