How Much Will a Carbon Tax Spur Innovation?

I meant to blog last week about the long dispute between Jim Manzi and Ryan Avent over what sort of innovation you get out of a carbon tax.  Digging into my massive RSS queue, I see that Matt Zeitlin blogged what I take to be a fair summation of the carbon-tax-as-innovation-stimulus side--a side to which I have, myself, occasionally subscribed.

Ryan Avent speaks for everyone who has been to Europe -- or has familiarity with their carbon usage and transportation policy -- and points out that Europe's transportation sector is hugely different from ours:

Clearly that's not the case. 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 this isn't just a qualitative difference. Not only is it vastly easier to get around using public transportation in Amsterdam than it is in downtown Los Angeles or Houston, but Europeans simply use much less carbon in their transportation sector than we do. And here's a nice handy chart, using data from the International Energy Agency. This is the per capita carbon emissions in the transportation sector in 2007 of the U.S. and an assortment of wealthy European countries.

Obviously, there's a huge difference: the U.S.'s per capita transportation emissions are roughly three times greater than the OECD-Europe average. And it's a disparity that can be greatly explained by the array of policies and the infrastructure that Avent describes. More generally, I think Manzi's focus on "innovation" -- some totally new or vastly more efficient method of energy production -- is misplaced. Although it would hardly solve our climate change problems, if we could get the emissions in the transportation sector down to European levels, that would be a huge improvement. More generally, according to McKinsey, there are huge potential gains in energy efficiency that would surely be more easily realized if the cost of energy, and especially carbon, were higher.

As I say, I support a carbon tax (which should be taken as shorthand for support of a well-designed cap-and-trade regime, or a source fuels tax, or other variations which basically do the same thing).  But I think that Manzi's criticism is well aimed, for a number of reasons.

First, it's just not true, or even partially true, that the only thing standing between us and European levels of efficiency is our danged cheap gas.  In many places, the US transportation sector is extremely efficient--we use rail much more heavily for goods movement than Europe does, for example.

I am not going to extensively rehash the ways in which the US is simply different from Europe:  the number of children and the length of time they have to spend in car seats that cannot be crammed three-to-a-bench-seat; the geographic dispersal; the extremes of weather which make air conditioning and heating necessary for much of the country.  I will note that though our population is majority urbanized, large swathes of it are living like my grandmother, in a place where the nearest "big city" is almost an hour away and has 150,000 in it, something that I don't think is physically possible to achieve in most of Western Europe. 

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Megan McArdle is a columnist at Bloomberg View and a former senior editor at The Atlantic. Her new book is The Up Side of Down.

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