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Carbon pricing works! Doesn’t! Does!

In arguing for efficiency mandates, Joe Romm notes the failings of carbon pricing as a solution to climate change:

> That means a price of $400 a metric ton of carbon (whether achieved through a tax or a cap & trade system) would increase the price of gasoline a mere $1 a gallon. How much efficiency would that drive? Not bloody much!

Joe Romm more recently comments on the future of the electric car:

> If hybrids drop in price and gasoline resumes its peak-oil driven upward trend, then by, say 2015, it would simply not make sense to bother producing a non-hybrid version of any vehicle.

This analysis doesn’t quite compute. Carbon pricing doesn’t matter, but oil’s upward climb (another form of carbon price) is about to drive conventional cars out of existence? Granted, the supply-driven swings in oil price are far larger than anything we expect from carbon pricing in the near term, but there still seems to be something missing from the analysis.

The main problem is the confusion between demand for driving with demand for internal combustion engines. Gasoline prices rise and fall by dramatic amounts, and miles driven only seem to climb (until they don’t). Europeans pay enormous gasoline taxes, and still they won’t quit their cars. This point is often taken too far, but people really do seem to like to drive.

Well, of course they do: personal mobility is an incredible convenience and an economic necessity. People want it a lot, and even in lean times they’ll give up a many other things before they give up their driving.

Now consider spark plugs. Would anyone really miss spark plugs? Or consider spark plugs’ complementary good: gasoline. The piece missing (or at least inconsistently treated) in Romm’s analysis is the arrival of a new form of personal mobility — the hybrid electric — that is about as good and almost as cheap as the internal combustion engine. Without hybrids, carbon pricing is fairly hopeless as lever on gasoline consumption. With hybrids, pricing starts to matter a lot.

Of course, carbon pricing didn’t create hybrid electric cars. Neither did efficiency mandates. Carbon pricing won’t do a very good job curbing demand for driving. Neither will efficiency mandates. But both carbon pricing and efficiency mandates absolutely can help to create a market for electric cars. Moreover, carbon pricing helps to create a market for renewable energy to power those electric cars. Efficiency mandates don’t. Carbon pricing also makes meat more expensive and causes companies to move factories across oceans, both things efficiency mandates aren’t so good at.

To be clear, Romm isn’t opposed to carbon pricing. Rather, he appears to be opposed to the faintly ludicrous strawman notion that “we aren’t going to meet a 450 ppm target by just raising carbon prices alone,” a position advocated by roughly no one. Likewise, I’m all in favor of efficiency standards, which offer much faster emissions reductions than carbon pricing alone, in spite of my leeriness of the government’s execrable track record on this sort of thing.

Nevertheless, the notion that transportation emissions won’t yield to carbon pricing is not nearly so well supported by the evidence as Romm suggests. The recent surge in the price of oil coupled with coming technological advances suggest carbon price sensitivity is higher than many suppose.

Perhaps more importantly, a questionable premise underlies both Romm’s original analysis and similar criticism of cap-and-trade from less knowledgeable sources. That premise, in brief, is that we need Solution X to beat climate change; Solution X is only viable if carbon prices become really high; therefore carbon pricing is bound to fail.

For the Wall Street Journal, Solution X is clean coal. For Romm, it’s electric cars. Both may be worthy technologies (although my money is on electric cars), but if carbon pricing can’t wave them into being tomorrow, the problem may simply be that they’re not quite ready yet. Reality matters. If the technology exists, carbon pricing will favor it. If it doesn’t exist yet, carbon pricing will favor cheaper forms of emissions reductions. That’s how the system is supposed to work.

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