A Carbon Tax Could Recoup Trump’s MPG Standards Cut

A fee to burn fuel would help offset everything else the White House is doing to destroy the environment.

A carbon tax could offset President Trump's proposed cut in MPG standards for cars.
A carbon tax could offset President Trump's proposed cut in MPG standards for cars.

Originally published by Carbon Tax Center.

Before you take umbrage at the headline, let me be clear: President Trump’s decision last week to freeze federal car-mileage standards at 2020 levels and revoking California’s authority to set the nation’s pace on auto emissions and fuel efficiency is contemptible.

The MPG freeze means more carbon emissions hastening the plunge into climate chaos not only for Americans but for the seven-plus billion other people with whom we share the planet. The California revocation also brings the curtain down on that state’s half-a-century of innovation in low-emissions regulation and technology.

Both moves are archetypal Trumpian policy-by-pique. Their sole purpose is to stick mud in the eyes of Gov. Jerry Brown, who with his father, Gov. Pat Brown, pioneered green state governance; of President Obama, for whom ramping up auto MPG requirements was a cornerstone measure to combat global warming; and of untold numbers of Americans who care deeply for our environment.

The policy, a gift to oil companies, accomplishes nothing while sowing vast damage. Like Trump himself, it is spiteful, sickening and stupid.

Emission trajectories shown reflect carbon tax that would diminish CO2 from autos as much as Trump’s MPG freeze will raise them. Economy-wide decreases in analysis-year 2035 are eight times as great as auto impacts alone.

But what’s also true is that a mid-range carbon tax could recoup the lost ground. I calculate that a U.S. carbon tax that started next year at a level of $5 per ton of carbon dioxide and increased by $5 a ton each year, with no letup, would, by 2035, be curbing carbon emissions from gasoline use by the same amount that Trump’s cessation of tighter MPG standards will increase them — around 140 million metric tons of CO2 a year.

Moreover, such an economy-wide carbon tax would bring about parallel drops in emissions throughout the economy — in electricity generation, freight-hauling, aviation and industry. I estimate that in 2035, when the hypothetical carbon tax would have reached $85 per ton, those reductions would amount to an additional 980 million metric tons. All told, the carbon tax would suppress carbon dioxide emissions eight times as much as the mileage freeze will elevate them.

To reflect the hypothetical nature of the carbon tax I express its benefits in the subjunctive (“would”) while employing the definite tense (“will”) for the Trump rollbacks. This is a necessary concession to the arduous and uncertain task of passing a U.S. carbon tax, in contrast to the president’s all-too-real administrative powers — notwithstanding the fierce legal and political challenges that will be mounted against both moves. The point is not to trivialize the White House’s latest destructive act but to highlight the vast potential of a robust carbon tax to cut emissions.

A carbon tax covering gasoline would stand in for higher MPG standards, in part, by nudging consumers to more fuel-efficient vehicles and, thus, incentivizing manufacturers to design and market them. More than that, the higher fuel price could inflect drivers’ day-to-day decisions on how far to travel and, for multi-car families, which car to take, not to mention how aggressively to drive. Vehicle miles traveled (VMT) would shrink somewhat as well, as decision-needles tilt toward car-sharing, trip-chaining, public transit, and walking and biking.

This isn’t to overstate the link between higher fuel prices and lower gasoline use. In our modeling at the Carbon Tax Center we employ a “long-run” gasoline price-elasticity of just 0.35 (discussed and derived here), by which prices at the pump must rise by a third to cut usage by a tenth. It also bears repeating that not all Americans have agency to respond to price rises. But while a binary frame may be useful for viewing individuals’ fuel-use decisions, the aggregate level of fuel use (and the resulting carbon emissions) is the product of literally billions of daily and longer-term decisions.

Moreover, autos (cars and light trucks) make up just one-quarter of U.S. carbon emissions — even when “upstream” oil refining is factored in. The sectors yielding the other three-quarters of U.S. CO2 — electricity, freight, air travel, industry, heating, construction — are more price-elastic, which is why a carbon tax that would recoup the reductions from the higher MPG standards would yield another 7-fold’s worth of reductions.

So yes, Bill McKibben is spot-on to call the mileage freeze Trump’s “stupidest decision yet in his endless attempt to roll back environmental protections.” And yes, a carbon tax of any stripe, let alone one that could rise to $85 per ton by 2035 as in our modeling exercise here, remains nowhere in sight so long as Republican extractionism and malice rule Congress and the White House.

But that’s not cause to ignore or abandon the long-term campaign for a robust U.S. carbon tax. Quite the opposite.

The Numbers Explained: We used the Rhodium Group’s May 2018 analysis, Sizing Up a Potential Fuel Economy Standards Freeze. For 2035, Rhodium projected a 114 million metric ton fallback in CO2 reductions if oil prices are low, and 32 million tons if prices are high. (The high-price fallback projection is smaller because expensive gasoline would do some of the work of MPG standards in engendering fuel efficiency while also dampening the amount of driving.) We conservatively used the higher figure and added 20 to 25 percent to capture upstream (refinery) emissions, yielding a target of 140 million metric tons. Through trial-and-error, we found that CTC’s carbon-tax model (downloadable as an Excel spreadsheeet) also projects a 140 million metric ton reduction from gasoline use, with a hypothetical carbon tax that would start next year at $5/ton and rise by $5/ton annually, in constant-2017 dollars. The economy-wide (all sectors) reduction is 1,122 million metric tons.

  • 1980Gardener

    I’d love to see this tax and the revenues from it put directly into carbon emission mitigation programs, including:

    – funding home conversions from oil and gas heat to electric
    – funding commercial and residential, small-scale solar or geothermal
    – research into more efficient ship, jet engines
    – tax credits to trade in one’s combustion engine car for an electric
    – more electric trains and buses

  • Jeffrey Baker

    This tax starts at basically zero, right? If I’ve done the math right, 100 gallons of gas when burnt produces 1 ton of CO2. So five dollars per ton is 5 cents per gallon? Even after 20 years of increases that doesn’t close the gap with the current OECD average fuel tax (over $2.50 per gallon). Just out of curiosity, I’d love to know where European countries fall on this price elasticity model. Do they seem to have the same 1/10th per 1/3rd response?

    Politically, although I’m obviously in favor of a plan like this, I don’t think it sends the message to Detroit that California means business. There should be a point of sale tax for internal combustion cars. Something really significant like the price of the vehicle multiplied by the ratio of an MPG standard and actual blended MPG. For example, that would double the price of the Ford F-150 5.0L V8, while doing nothing to the price of a Honda Civic 1.8L.

  • Drew Levitt

    Thanks, Charles, for this thoughtful piece. It’s almost hard to read about how much good work we could be doing, how much crucial difference we could be making – if only we as a nation wanted to.

    Some days I feel like we deserve what we get.

  • Kenny Easwaran

    The important difference here is that a carbon tax would apply to *all* sources of carbon emissions, not just gasoline in vehicles. Power plants and steel factories that use coal would need to pay for it, and construction techniques that can make use of wood might beat construction techniques that require concrete for more buildings.

ALSO ON STREETSBLOG

Higher Gas Prices Alone Won’t Make Cleaner Cars a Reality

|
The average carbon emissions of U.S. vehicles. (Image: EPA) It’s a storyline that the media and the auto industry have embraced: Higher gas prices are the magic ingredient that U.S. carmakers need in order to sell more fuel-efficient vehicles to consumers.  The narrative is tempting, especially for those who believe federal gas taxes need to […]

Study: Clean-Car Subsidies Alone Can’t Meet White House’s Climate Goals

|
Government subsidies for hybrid and electric cars, while "politically seductive," will fail to achieve the Obama administration’s national pollution-reduction goals if they are not coupled with a significant increase in fuel prices, according to a new study by Harvard University researchers. (Photo: Pop and Politics) The team at Harvard’s Belfer Center for Science and International […]

The New Climate Villain Is Cheap Oil

|
Long-term climate prospects brightened somewhat in 2015. Pope Francis put climate care on the moral and political agenda. President Obama rejected the Keystone XL dirty-oil pipeline. Denialist heads of state were routed in Canada and Australia, and their brethren in the U.S. faced growing ridicule. To cap it off, nearly 200 nations signed the UN Paris […]

Final Obama Fuel-Efficiency Rule Gives Breaks to Electric, Luxury Cars

|
The Obama administration today released its final rule raising U.S. auto fuel-efficiency standards to an average of 35.5 miles per gallon (mpg) by 2016, winning plaudits from environmental groups while offering extra benefits to makers of electric and luxury cars. Transportation Secretary Ray Lahood, at left, with EPA chief Lisa Jackson at right. (Photo: Getty […]