Tax That Carbon

Grist's Charles Komanoff takes a look at the carbon tax issue we were discussing yesterday and backs up my a priori speculations with some more detailed estimates:

Two widely respected transportation economists at UC Irvine, Ken Small and Kurt Van Dender, looked at pretty much the same gasoline data as Dan and observed the same low (under 10 percent) short-run price elasticity. Unsurprisingly, but importantly, Small and Van Dender found gasoline's long-run price elasticity to be much higher, approximately 40 percent.

Which is to be expected. Another thing that should be said is that consumer response to the rise in gasoline prices over the past seven years is an only imperfect model of likely medium-term response to carbon taxes. A rise in market prices can be construed as temporary -- especially with politicians from both parties promising to take action to make gasoline cheaper -- whereas a sustained commitment to make carbon-intensive modes of transportation more-and-more expensive over time would create a more serious incentive to take carbon intensity into mind when making decisions about which cars to buy, where to live, etc.