Uhh, nice try. The fact that people drove more while fuel economy declined does not rule out increased economy as “an” additional incentive to drive. People drive more because:
- they have more money or, rather, gas takes less of their disposable income and one part of that is fuel efficiency
- good highways make it easier
- cars are more fun (ever take a long trip in a 1950 Ford?)
- it’s a status thing

Joe: Okay, you’ve hoisted Mankiw on his own petard (a too-modest carbon tax), but now what? Let’s focus on Tidal’s point that the tax level can be adjusted once it’s been proven to be both effective and equitable. The principle of taxing carbon matters more at this stage than the level.

Joe again: I’m not sure of the point of your US-Euro comparison, and besides, the sponginess of the mpg figures (are they “sticker” or “real”) makes the comparison dicey. The more important point is that Europeans consume half as much motor fuel per capita as Americans, and that’s due to a considerable extent to their higher pump prices. Indeed, Europeans’ lesser VMT contributes mightily to their higher quality of life.

In my state we have a sales tax on vehicles, used and new. That just raises the cost of vehicles for the poor also. Lets reduce the sales tax by exempting the first $500 of the tax for every vehicle purchaser. The money saved in sales tax, if it went for a more efficient car, could save fuel as well. I read somewhere that if $2000 more was put into the fuel efficiency of a Taurus, it would give the car 10 more MPG.

The point would be to reduce other taxes that the poor would pay. Reduce their property, sales, social security or income taxes. What would be the point of any of these taxes for the poor? What problem is to be solved? Carbon taxes should be the first taxes that anybody pays around the world, because this is an around the world problem.

Even in poor countries, there is still a need for taxes at some level to pay for government and government services. In a selection of all the taxes that can be made by a government, a carbon tax should be the first one to impose on people.

The U.S. did an experiment almost 30 years ago on what gasoline price it took to affect demand in a small way. In inflation adjusted terms, we are approaching that price again. According to one website, the annual average inflation adjusted price in 1980 was $3.06 in 2007 dollars. However, inflation adjusted gasoline prices do not tell the whole story. The fraction of one’s income spent on gasoline is relevant too, and probably of greater significance, and by that measure, gasoline would have to be well over $4 per gallon to have an effect similar to 1980.

If Joe’s figures on European taxes and MPG are correct, it is interesting that the average U.S. driver and average European driver can each go about 740 miles on $100 of gasoline. The extra efficiency cited (37 MPG) almost exactly cancels the extra $2/gallon of tax. This is similar to the situation with electricity: Californians pay more but use it more efficiently than the rest of the U.S., with the end result that the average bill is similar,
but the average annual greenhouse gas emissions are dramatically lower (about 3.7x lower per person).