A small price to pay 2

Seems like more and more people -- even conservative economists -- are going on record in support of higher gas taxes.

From an economist's point of view, it's a bit of a no brainer. Like just about any addiction, our gasoline habit carries lots of "externalities" -- costs that fall on everyone rather than just the person who uses the gas. (Think climate change, oil spills, air pollution, security vulnerabilities, international military entanglements, economic risk from oil price shocks, etc.)

If we consumers had to pay those costs every time we filled our tanks, we'd use gas a little more sparingly -- and we'd create fewer externalities as a result. Plus, the taxes could provide a source of revenue to deal with the problems created by energy consumption -- say, a dedicated funding source for ramping up efficiency.

But that begs the question -- just how high should the taxes be?

There's no easy answer to that question, since there are so many uncertainties involved. Estimates of various military costs of petroleum vary by as much as a factor of six, for example (see this PDF for a summary). But taking a limited look at just the climate impacts of gasoline consumption, I'd say that a tax of, oh, about 25 cents (U.S.) per gallon is a reasonable place to start.

That works out to roughly a penny per mile.

Applied to both gas and diesel, that tax would raise about $2 billion per year to fight climate change in the Pacific Northwest alone.

I don't think a quarter per gallon is definitive. But there is a bit of econo-geekery behind it; I didn't just pull it out of thin air.

The European Climate Exchange -- which, at this point, is the best-functioning carbon market on the planet -- keeps a record of daily closing prices for a metric ton of carbon. Adjusted for US dollar-to-euro exchange rates, it looks to me that cost of a one-metric-ton CO2 offset averaged about $25 since the inception of the market in early 2005. (The market's been pretty volatile, especially lately, but the prices have mostly been between $20 and $30 US.)

Burning a gallon of gas in a car emits about 19.6 pounds of CO2 directly, plus some additional CO2 in petroleum extraction, refining, and transportation. So when I do the math, the cost of carbon offsets works out to about 25 cents per gallon, give or take.

There are a few points worth mentioning here. First, and obviously, this is just the carbon costs, using recent figures for carbon offset prices. If you add in other externalities, the price ought to be higher. Plus, if the cost of carbon offsets rises -- as it may, once the early, easy opportunities for offsets get used up -- the cost per mile will go up too.

Second, this represents the cost of the offset -- roughly speaking, how much we'd expect to pay to reduce carbon emissions somewhere else in the economy (through, say, improvements in home heating or lighting, or increasing wind power, or subsidizing efficient cars, or somesuch). It doesn't account for the cost of climate change itself -- which, according to recent estimates, may be astronomical. If you had to capture the cost of global warming's impacts in a carbon tax, the price would probably be a lot more than a penny a mile.

And lastly, a penny a mile seems pretty darn cheap to me. After all, the price of a gallon of gas has fluctuated by about $1.80 over the past three years. Put in perspective, a 25-cents-per-gallon gas tax isn't such a big deal. Not that that makes it any more palatable politically. But a penny a mile seems like a relatively small price to pay, given the stakes.

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