# Does recent gasoline price sensitivity data show that HR 763 Carbon pricing insufficient for the transportation sector?

Does recent gasoline price sensitivity data show that HR 763 Carbon pricing insufficient for the transportation sector?

# This answer provided by: "Heh" moved to chat so it can't be seen:"Of course carbon pricing is insufficient for the transportation sector"

Recent data show a price elasticity of demand for gasoline of -0.1 The following graph showing the change in price is mirrored by change in vehicle miles traveled seems to provide strong evidence that the price elasticity of demand for fuel in the transport sector -0.1.

By dividing the maximum range of vehicles miles traveled 8.6% by the maximum range gasoline price 89.2% we estimate the price elasticity of demand for gasoline = -0.0964

Here is the corresponding data: https://www.energy.gov/sites/prod/files/2018/04/f50/fotw_1024_web.xlsx

Point Price Elasticity of Demand formula: PED=((Q1-Q0)/Q1)/((P1-P0)/P0)

-0.1=((50-100)/100)/((P-2.66)/2.66) // Q0=100, Q1=50, P0=2.66, P1=\$15.96 \$16 per gallon to reduce quantity demanded to 50%
Corresponding \$1330 carbon price is 3-fold greater than HR 763 maximum \$430

-0.1=((10-100)/100)/((P-2.66)/2.66) // Q0=100, Q1=10, P0=2.66, P1=\$26.60 \$27 per gallon to reduce quantity demanded to 10%
Corresponding \$2394 carbon price is 5.5-fold greater than HR 763 maximum \$430

Any legislators that are very confident of their own carbon fee estimates would have no legitimate basis for rejecting a Carbon Fee Fail-safe and Safeguard that only takes effect if their estimates are proved to be incorrect.

# Carbon Fee Fail-safe and Safeguard

Every Year once a year:
if (Years_Behind Schedule > 1.0) // Carbon Fee FAIL_SAFE
Carbon_Fee = (Years_Behind Schedule * $15); else if (Years_Behind Schedule > 0.0) Carbon_Fee = Carbon_Fee +$15; // HR 763 Trigger

else if (Years_Behind Schedule > -1.0) // Carbon Fee SAFE_GUARD
Carbon_Fee = Carbon_Fee + $10; // HR 763 Default # I am ONLY looking at the PED for the transportation sector to prove that the fixed pricing of all of the carbon fee and dividend programs must have much more flexibility that kicks in if we fail to meet carbon reduction targets.WE CAN'T RISK LOCKING IN A CARBON PRICE THAT IS FAR TOO LOW. A US law (and every other similar US law) that is currently backed by the Citizen Climate Lobby is based on the premise that raising the price of gasoline a tiny little bit each year until at the end of 30 years total prices have increased by 100% to 150% will cause a 90% drop in emissions from gasoline. These two links seems to show that these expectations are totally unrealistic: https://www.energy.gov/eere/vehicles/articles/fotw-1024-april-9-2018-changes-vehicle-miles-travel-often-mirror-gasoline ## 2 Answers No, it is not sufficient proof. There are a host of possible drivers of "vehicle miles per-capita" that are not causally connected to the price of fuel. You would need to make a good-faith effort to identify them and assess their relative impact before coming to the conclusion you've done. This is in addition to the fact that the graphs you shared indicate that total miles travelled have been flat since 2005, and miles per-capita have dropped since 2005 even as gas prices roughly doubled. • I have a whole separate price elasticity of demand question also posted economics.stackexchange.com/questions/32186/… and the big issue there was which of two different formulas is more appropriate. – polcott Oct 17 '19 at 21:17 • The thing is, the moment affordable substitutes go live, your elasticity estimates will be worthless. The other issue with this analysis is that it's only looking at half the question. An appropriately administered levy will recycle revenue into reducing other taxes and incenting investment in the development and deployment of substitutes for fossil fueled transport. This is part of what I was getting at by pointing out the trend break in your graph. – heh Oct 21 '19 at 14:20 • I am only really looking at a carbon fee and dividend program that gives ALL of the untaxed money directly back to the people on some strictly per capita basis. I am looking at this as the economic driving force to make alternatives more cost-effective. With an insufficiently steep carbon fee this cannot work. By giving ALL of the untaxed money back to the people those with average carbon consumption would most often break even throughout the whole transition away form fossil fuel dependence. – polcott Oct 21 '19 at 16:52 • To first-order, yes, but the world doesn't work at first-order. One of many things well-designed plans take into account is the fact that, e.g, elasticity of consumption for fossil fuels varies broadly by economic class, industrial sector, etc. Anyway, the point is that the initial question is ill-posed. You're leaving out a lot of complications that matter at the policy level and to be quite frank, this should be obvious just by looking at the graphs you posted. – heh Oct 21 '19 at 17:14 • I honestly don't understand the premise or proposed solution around your question. Are you now suggesting that we somehow monitor PED in real-time and (also in real time) impose a varying carbon price in response to PED? To what end? Is there a "socially optimum PED"? Of course carbon pricing is insufficient for the transportation sector. This is why the lion's share of efforts are around developing substitutes (biofuels, EVs, hydrogen fuel cell freight), and why a lot of carbon tax revenue is directed toward innovation and not toward tax offsets. – heh Oct 21 '19 at 17:29 No, it was moved to chat because Stack Exchange is getting tired of this nonsense and asked me to "please avoid extended discussions in comments". You're not cracking open a vault with the realization that existing carbon pricing is inadequate to impact behavior on the scale necessary to meaningfully drop emissions from transportation enough to move us to a more favorable warming scenario. What you're suggesting is untenable strictly from an information flow standpoint. It's also untenable economically until the root cause of the elasticity problem you've identified is addressed through the development of affordable substitutes to fossil-fueled transportation. Why are you so sure that$15 is some kind of magic scale factor? Why do you think climate damages scale linearly with time delay? Maybe they rise exponentially. In fact, guessing based on physical first-principles, they likely do.

• All of the current legislation and most all of the projections indicate that HR 763 carbon pricing will reduce current emissions to 10%. EVERYONE NEEDS TO KNOW THIS IS NOT TRUE. You agreed that this is not true as if this is common knowledge that everyone already knows. The \$15 comes from HR 763. I would start with \$100 and raise it by \\$100, skipping years that we are ahead of schedule. – polcott Oct 21 '19 at 21:42
• I think it's time to admit that you came here not looking for an answer, but for an audience. I don't disagree with you that existing carbon pricing schemes are woefully out of date. I definitely disagree pretty much completely about whether PED can provide a useful signal that would trigger carbon price changes in a timely way, especially PED for such a volatile product as transportation fuel. – heh Oct 21 '19 at 21:55
• 1. Your plan is or was already in effect at several levels of government here in Canada, and the tax/fee distinction is politically meaningless. It operates as a tax, people view it as a tax, and they vote as if it is a tax. That genie is forever out of the bottle. 2. Your entire post revolves around the PED. You're using it to prove something people already know, and you're not doing it correctly besides that, for all the reasons I've tried to impress upon you. – heh Oct 22 '19 at 14:37
• 3. There's a lot of research activity suggesting that current carbon accounting is woefully inadequate. The issue of fugitive methane emissions is just one aspect of this, but recent concerns around fugitive sulfur hexafluoride emissions have come to bear now that distributed energy systems are becoming more popular. You need to address the information challenges present in your "solution" to the problem you've "identified". How would you know when to slam the brakes if you don't know how fast you're going? – heh Oct 22 '19 at 14:38
• "So people don't notice the difference between getting ALL of the money back right away and never getting any of the money back?" Unfortunately, they literally do not. I don't like this any more than you do, but 70% of households in Alberta were getting money back and it didn't matter. This debate is purely political, and facts have minimal ability to change minds. – heh Oct 22 '19 at 16:40