Gas Tax Makes More Sense Than A Cap And Trade System

Barack Obama wants to reduce CO2 emissions, invigorate the American auto industry and reduce dependency on “foreign oil”.

What legislative policy makes more sense for hitting those three square on? Raising the tax on gas, or creating an artificial market to trade carbon emissions?

Either policy will infuriate the American public. So, if Obama is going to burn a ton of “political capital” and goodwill to ram through a environmentally focused bill, why not do it for a gas tax, rather than cap and trade?

In the chart below from the EIA, we can see that the transportation sector provides the second largest source of CO2 emissions, and petroleum creates more emissions than coal.


The diagram illustrates the flow of U.S. greenhouse gas emissions in 2007, from their sources to their distribution across the U.S. end-use sectors. The left side shows CO2 by fuel sources and quantities and other gases by quantities; the right side shows their distribution by sector. The centre of the diagram indicates the split between CO2 emissions from direct fuel combustion and electricity conversion.

Obama wants the automakers designing and selling more Prius type cars to cut back on emissions, but without cheap gas, the consumer is not interested. Prius sales are down 50% for the year, while total small car sales are down just 33%. An increased price at the pump could return the sales of hybrids to last summer’s highs.

To appease small government types, Obama could dial back the hybrid subsidies given out, because the new price of gas would make them obsolete. Suddenly the government gets a new inflow of cash, as opposed to outflow.

This would obviously cause political pain, but at least it would be effective in kick starting the goals of the adminstration. By the time a U.S. cap and trade bill is actually passed, it could be so weak that it won’t do much to dial back emissions.

James Hansen a leading voice shouting about global warming says the Kyoto Protocol “didn’t do anything to global emissions.”

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