Friday, July 30, 2010

Gas Tax, Innovation, And A Question

Ryan Avent responds to Jim Manzi's contention that high gas prices in Europe haven't sparked innovation toward a low carbon fuel source:
In general, Europeans do drive different automobiles, which tend to be smaller and more efficient. Some of these have been innovative enough in their design to generate raised eyebrows from American tourists (see: the Smart car). In Europe, the scooter is far more popular and differentiated (the scooter with roof is a common sight). Bicycles are also more common and differentiated, and the institutional supports for cyclists are more highly developed (cycle superhighways are old news in Europe).

And then there’s public transport. From buses to trams to trains to high-speed rail, Europe is well ahead of America. When American transit systems go shopping for vehicles, they generally look to European manufacturers. When the District sought a technology that would allow the city to run streetcars without using overhead wires, it looked to France’s Alstom and Canada’s Bombardier (Canadian gas tax rates are considerably higher than those in America). And transit innovation goes beyond vehicle technologies. It includes fare-gathering methods, scheduling, system design and maintenance, and so on.

And then, of course, there are innovations in the physical structure of the landscape. Europeans do density well. So do some Canadians (Vancouver has the country’s highest gas tax rate and some of the world’s finest urban design).

And so on. The end result is that Europeans use a lot less gas, as Manzi acknowledges. But they don’t just reduce their consumption, as he intimates. They don’t lead lives exactly like ours, only they opt to sit at home while Americans go for Sunday drives. They have adapted and innovated their way around higher gas prices.

I'm of mixed mind on this. What Ryan is describing isn't innovation really. Innovation would be, I think in both my mind as well as Jim Manzi, a way to do the same thing with less carbon. Think a Hummer powered by a fuel cell as the ultimate expression. Driving smaller cars and driving less aren't innovation as much as merely adaption.

The question I have is whether this reduction make us worse off? Are people worse of driving smaller cars or not driving when they otherwise would without a tax? The answer, I'm pretty sure, is yes. In fact, that's pretty much the description of a deadweight loss, no? Plus, smaller cars lead to increased traffic deaths. Although, driving less would probably offset that anyway.

Then, if I'm correct there about the worse off, the question is whether this loss, as well as additional losses in foregone economic growth moving forward, are worth the benefits of mitigating or ameliorating global warming? Sure could be. Especially given new data. But I think Ryan is conflating adaption, doing less or something else, with innovation, doing the same thing without the carbon.

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