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The Progressive Economics Forum

Fuel economy and BC’s carbon tax

I’m deep into figuring out what the new BC carbon tax means for different income groups. But stumped by some anomalous results from the modeling, I took a detour and ended looking at my own output of GHGs. Living in hydro-power-rich BC, our electricity is almost entirely GHG-free, and in the rest of the home it is a natural gas fireplace that does fairly little damage. The big family contributor is the car, a 1992 Toyota Corolla stationwagon, known locally as Isis (don’t ask).

Isis gets an average fuel efficiency, according to the US Department of Energy (see for yourself here), of 27 miles per gallon, which north of the 49th parallel translates into 8.7 litres per 100 km. Relative to the overall fleet, this is above average fuel efficiency, probably because she was built at a time when the SUV was just becoming fashionable and fuel economy was still a priority of automakers after the run-up in energy prices in the late-1970s.

According to the BC Budget, which has a nice table of various cars, fuel efficiency and estimated carbon tax, the most fuel efficient 2008 passenger car out there is the Toyota Prius hybrid, consuming 4.1 litres per 100 km. The top light truck is the Ford Escape hybrid at 7.0 L/100km. The budget does not list every car, but interestingly, the least fuel efficient vehicles on the page are the top two in light truck sales, the Ford F-series pick-up and the Dodge Ram pick-up, at 14 L/100km. (According to the US government site mentioned above, the absolute worst in fuel efficiency are high end sports cars, like the Lamborghini, which gobbles about 22 L/100km.)

So here’s the consumer economics. If we drive 10,000 km this year (higher than our average in recent years but lower than most drivers), we can expect to pay an additional $21 due to the carbon tax of $10 per tonne. The Prius will pay an extra $10, and the Ford F-Series pick-up an extra $34. In addition is the general cost of gassing up the vehicle, which, at yesterday’s posted gas price of $1.20 per litre, works out to $1,680 for the Ford pick up, $1,044 for Isis, and $492 for the Prius.

The carbon tax is thus ridiculously small in terms of behavioural incentives. If I buy a Prius it will be to save $552 per year in fuel costs, not the extra $11 in carbon tax. Of course, the idea behind the carbon tax is that it will steadily increase over time. By 2012, the BC carbon tax will reach $30 per tonne, adding an extra $33 for Isis relative to the Prius baseline.

So how big would the carbon tax have to be before it made any kind of dent in decision-making? At $200 per tonne (a level that Mark Jaccard and company figure will be necessary by 2050 to meet a federal GHG reduction target of 45%), the difference between Isis and Prius still only amounts to $220 per year, less than half the current difference based on fuel economy alone. This may, however, be enough to change my incentive on the margin when contemplating a new purchase if the comparator had equivalent fuel efficiency to Isis (ie annual savings in total of $772 per year). (Note that Jaccard’s modeling is based on changing technology not changing behaviour or any other structural considerations, like higher density and mixed use neighbourhoods.)

The other part of the equation is that there are major fixed GHG emissions associated with any sort of driving. Estimates vary but perhaps half of the total emissions associated with a car come from manufacturing and disposal, and the emissions associated with building and maintaining roads (see this post). So the best thing to do from the perspective of climate change is to stop driving entirely. I already bike to work, and with some major transit upgrades I could forsee a car-free future.

Engendering a society-wide shift that dramatically reduces vehicle kms travelled is going to be one of the biggest challenges we face. A growing carbon tax may be a start but other measures are going to be needed, too. It may be more effective to restrict the amount of road space and parking, and turning over some of the existing space to bikes and transit, than to rely on pricing alone.

Enjoy and share:

Comments

Comment from Timothy Webster
Time: April 8, 2008, 9:08 pm

Carbon taxes only works if driving is a luxury. However we have made driving a necessity. With the high price of fuel how do you honestly expect someone to go out and buy a new fuel efficient car. Waiting until their existing car dies may take 5yrs. Five more wasted years.

The only way to reduce driving is to provide people an option other than driving.

The suburbs of today are designed and build for cars and not people. Suburbs are a land usage and pollution disaster, simply because social cost and benefits of land usage are not taken into consideration. The US sub prime crises is in reality also a housing crises which can be best solved by redevelopment, not new development. Developing of new land well discarding existing developed land simply results in either the old development or the isolate new development being in practical terms discarded and worthless.

Suburbs are gobbling up the best farm land, because the social cost of losing this farm land forever is simply not reflected in the land price. To reflect this cost a land usage transitioning tax needs to be charged when ever land is transformed from natural wilderness or farm usage to urban or industrial usage. The land usage transition tax should be 8 times the selling price for farm or forestry usage. Also land in its natural green state, whether it is forests, farmland or parks within a city needs to be taxed a much low rate to reflects its social benefit.

Property value taxes do not accurately reflect the social value of land. High value land enjoying access to social transit services are under valued. As a result people sit on this land preventing redevelopment. This prevents redevelopment of this high value land, insuring continued low property values and denying cost effective higher density redevelopment. Many more people would have an opportunity to enjoy access to transit if this was not the case. Land near transit should be taxed based on the access to transit it provides. This land near transit should taxed at the same rate regardless whether it is 30 story high rise condo, or a parking lot. Height restrictions near transit are senseless. Green space regulations however do make sense.

History is about to repeat is itself.

Much of the hardship suffered in the great depression was the result of incredibly destructive land practices we would not even dream of today.
http://www.cyberspaceag.com/visitafarm/southwestkansasfarming.htm
One of the farming practices of that time was to burn the stubble – the plant stalks left after harvesting. At this time, all fields were planted back to a crop and burning made it easier to plant. But, burning destroyed the organic matter that would help the soil. One of the favorite farm implements of the time was called a “one-way”. This implement would turn the stubble under, saving the organic matter, but it left the soil exposed to the hot sun and dry winds.

To Quote the author.
We here in Southwest Kansas have learned to live with “Mother Nature” rather than fighting her!

Comment from unparalled61
Time: March 5, 2009, 7:23 pm

Today is far more different than last year. Gas prices got seriously decreased and some assumed of it as a negative impact to the economy and it’s because the demand is down significantly, and likely will remain down and continue to drop, slowly. We’re now talking about having fuel-efficient vehicles and auto makers are now committed to creating vehicles that get better gas mileage.

Comment from terrarium tv
Time: August 2, 2018, 5:40 am

Carbon taxes only works if driving is a luxury. However we have made driving a necessity. With the high price of fuel how do you honestly expect someone to go out and buy a new fuel efficient car. Waiting until their existing car dies may take 5yrs. Five more wasted years.

The only way to reduce driving is to provide people an option other than driving.

The suburbs of today are designed and build for cars and not people. Suburbs are a land usage and pollution disaster, simply because social cost and benefits of land usage are not taken into consideration. The US sub prime crises is in reality also a housing crises which can be best solved by redevelopment, not new development. Developing of new land well discarding existing developed land simply results in either the old development or the isolate new development being in practical terms discarded and worthless.

Suburbs are gobbling up the best farm land, because the social cost of losing this farm land forever is simply not reflected in the land price. To reflect this cost a land usage transitioning tax needs to be charged when ever land is transformed from natural wilderness or farm usage to urban or industrial usage. The land usage transition tax should be 8 times the selling price for farm or forestry usage. Also land in its natural green state, whether it is forests, farmland or parks within a city needs to be taxed a much low rate to reflects its social benefit.

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