Geoscience Reference
In-Depth Information
they have been shown to be so ineffi cient. Studies have shown again and
again that gasoline taxes are more effi cient than regulations in reducing
gasoline consumption or reducing the CO
2
emissions from transporta-
tion. Yet most countries prefer to impose fuel effi ciency standards rather
than taxes. The United States has tightened its standards while leaving
the gasoline tax to decline in infl ation-corrected terms.
There are many reasons for the regulatory tilt. One is that the costs of
regulations are hidden from consumers. In the gasoline example, fuel ef-
fi ciency standards raise the price of automobiles without leaving any gov-
ernmental fi ngerprint; by contrast, raising gasoline taxes has generally
been highly contentious, and high fuel prices even provoke riots in some
countries. An additional factor promoting the regulatory approach is that
businesses usually fi nd that they can manipulate regulations to their ad-
vantage and can even “capture” regulatory agencies (in the sense that the
regulatory agency advances the interests of the regulated industry rather
than the public interest), while taxes have proven harder to manipulate.
A good example of why businesses prefer regulation is the cap-and-trade
approach, in which existing polluters have generally been granted valu-
able pollution allowances for free. Giving preferences to businesses under
a pollution tax is harder to engineer because it is so visible.
Pessimists might throw their hands up in despair. Regulations can-
not do the job effi ciently, yet governments continue to use them as the
primary approach. Advocates of carbon pricing will not deny that there
is opposition to their proposals. But humanity is faced with a new and
profound peril in global warming. We will need new tools to deal ef-
fectively with this danger.
The truth is that unless we implement an effective policy of carbon
pricing, we will get virtually nowhere in slowing climate change. It
may take time for people to become comfortable with new approaches.
Moreover, people tend to overestimate the net cost of regulatory taxes
because they overlook the fact that the revenues can be recycled by
lowering other taxes. Therefore, explaining the importance of the use
of market-based approaches such as carbon pricing is just as important
a part of the educational process as explaining the science behind cli-
mate change.
