Hey, free carbon tax

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Even now that public opinion has started to shift towards more concern about climate change, political inertia—and especially the inherent conservatism of the American system—make a dramatic change like a nationwide carbon tax or cap-and-trade system incredibly difficult to implement. It's just too easy for a small group of vocal opponents to block legislation, or more likely dilute it to the point where it doesn't do anything. [When I say "too easy" I'm not taking a normative position; I just mean that the system isn't designed to make change easy.]

But consider our current situation: in the past year the price of gasoline has gone from about $3.00 to about $4.00/gallon. In effect, from the perspective of 2007, we've imposed a $1.00/gallon carbon tax. For comparison, even proponents of carbon taxes are looking at more like $.10/gallon. This isn't ideal for a number of reasons:

  • The price of gasoline depends to a great extent on the price of oil and the price could go down at some point. On the other hand, there's no reason to believe it will go down and people's behavior has already started to change.
  • Oil burning isn't the only carbon emitter and coal and natural gas prices aren't going up as smoothly, though a little searching suggests they may be going up too, which is what you'd expect.

The good news, though, is that the inertia of the political system works to keep prices high. Even if there was something effective the government could do to bring prices down—which seems unlikely in any case—all that carbon control proponents need to do is block that legislation, which is a lot easier than getting their own legislation passed.


When you say that there's no reason to believe the price of oil will go down, do you mean in the near term (the next year or two), or the medium term (the next five to ten years)? In the latter case, I'd say that the likelihood of a significant drop in the price of oil is very high. There's plenty of oil out there that's profitable to extract at, say, half the current world market price--a level which wasn't even touched until a couple of years ago, and certainly wasn't considered reliably sustainable until very recently. I see no reason not to expect a repeat of the pattern of the 1970-2000 period, when a huge runup in the price of oil led to massive expansion in supply, followed by an oil glut that drove oil prices down to less than half their peak level.

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