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Cheap Gas and Cheap Talk at the December 2015 COP Climate Change Mitigation Meetings

Monday, January 25, 2016 18:39

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(Before It's News)

The NY Times asks just the right question in this article. As gas prices decline, will the world's consumers now revert to buying fuel inefficient large safe vehicles? Will governments around the world have the guts to raise gas taxes? Do you remember my blog post from January 9th 2015 when I recast Richard Thaler's Save more Tomorrow in thinking about raising gas taxes?

A repost of my old stuff;

“This blog post will borrow some ideas from Shlomo Benartzi and Richard Thaler's Save More Tomorrow proposal and apply them to raising gas taxes. They identified a problem that we are not saving enough for retirement. They proposed that a credible solution to this problem is for people to commit to save a given fraction of future raises in their earnings.

“Our goal was to design a program to help those employees who would like to save more, but lack the willpower to act on this desire,” write Thaler and Benartzi.

Using principles drawn from psychology and behavioral economics, the plan gives workers the option of committing themselves now to increase their savings rate later. Once employees join, they stay in the plan until they opt out.

The SMarT plan has four basic components: First, employees are approached about increasing their contribution rates approximately three months before their scheduled pay increase. Second, once they join, their contribution to the plan is increased beginning with the first paycheck after a raise. Third, their contribution rate continues to increase on each scheduled raise until the contribution rate reaches a preset maximum. Fourth, the employee can opt out of the plan at any time.”

Could this same idea be applied to the gas tax? Such a policy change would raise revenue and reduce greenhouse gas emissions. When the price of gasoline was $4 a gallon, could the U.S Congress have passed an act that said, for every 50 cents future decline in gasoline we will raise the gas tax by 25 cents?

Would Republicans vote for this? Yes, the price of gasoline would rise for consumers relative to the no tax scenario but the price of gasoline over time would still fall for consumers. Such legislation would collect more gas revenue when prices fall and would send a clear signal to Hummer lovers that they should continue to seek out fuel efficient vehicles.

I realize that if the price of gasoline becomes more volatile around the same mean then this proposal would keep raising the tax each time the gas price falls.

My point here is that that the Benartzi and Thaler logic implies that even Republicans might be willing to share a fraction of “future price declines” with the government if they trust government to use the collected funds wisely.

The interesting point here is whether Congress could pass “contingent policies”. Such a policy would state: if the price of coal or gasoline declines, then we will raise this tax by x%.

UPDATE, my co-author David Levinson recently posted this on this broad issue.

Source: http://greeneconomics.blogspot.com/2016/01/cheap-gas-and-cheap-talk-at-december.html