There is, or was, widespread agreement on the use of carbon pricing to fight GHG emissions. It even looked like bridging the right-left divide in good neoconservative fashion, achieving the liberal goal of fighting climate change with the conservative method of getting incentives right. So we go back once more to the well of Ronald Barmby’s book Sunlight on Climate Change (p. 129) on a point that should have been obvious but apparently wasn’t: because energy is so essential, and fossil fuels overwhelmingly the only reliable choice, “gasoline, or petrol, if you prefer, has a demand curve that economists call inelastic. That means the average consumer will still buy about the same amount of gasoline regardless of price, within a reasonable range.” That unresponsiveness means small or even not-so-small carbon taxes won’t be enough to get people to stop buying the stuff. So we ask, again, how high do advocates of carbon pricing think we should go if the goal is Net Zero? Or even just Paris?
To help them think it through, the passage is worth quoting at greater length for its lucidity and importance: “gasoline, or petrol, if you prefer, has a demand curve that economists call inelastic. That means the average consumer will still buy about the same amount of gasoline regardless of price, within a reasonable range. Consumers will do this because they need to drive or heat their home and are not wasting fuel because it is so expensive already…. in the last decrease, the price of crude oil varied from $150 per barrel to $30 per barrel, and the demand for gasoline was fairly flat throughout. An exception to this would be when a car is replaced with a more fuel-efficient car due to high fuel prices. This is a slow process as the average car on the road in the USA today is 11 years old. Another proof of inelastic demand is that the price for natural gas in home heating is at historic lows in North America, but homeowners are not turning up their thermostats from 20°C to 25°C because the heat is cheaper. They continue to heat their homes at the same comfortable temperature.”
Now here we issue a challenge to our foes. And friends, though we expect we know their answer: How many of you have turned down the thermostat in winter, or up in summer, in the last three years? And if not, what level of carbon taxes would it take? We’ve heard various numbers, from the Trudeau Administration’s soothing but obviously insincere 2019 $50/tonne to their post-2019-election $170 to the Ecofiscal Commission’s $210 to New Zealand chemist and 2007 IPCC lead author David Lowe’s $1000.
Of course most people back away fast from numbers like the last, given their political infeasibility. But a little backbone please: since demand for fossil fuels is highly inelastic (regular gas in eastern Ontario is now nearly $1.40/litre, up from barely $1 earlier this year, with no discernible impact) and you say you have to price them out of reach, what number is realistic?
Once we get an answer to that one, we’re going back to what the ideal temperature is and how you know, and how much it matters to stay permanently within 1.5°C of it or whatever is taken to be the margin of safety outside which life on Earth will wither exactly the same way it didn’t last time. (And whether the past history of our planet suggests that an increase or decrease in temperature is more likely to create conditions hostile to the flourishing of plants and animals.) But first things first.
How high should carbon taxes be to overcome the inelasticity of demand? Because if you don’t know, or won’t say, or those long words make your head hurt, you’re no use to anyone.