Higher gas taxes can be good for the environment.
That’s the bottom line in research that Furman University economist Taha Kasim is conducting. He wanted to find ways to incentivize people into making choices that are good for the environment; specifically, how to persuade motorists to drive cars “that don’t spew excessive amounts of carbon dioxide into the atmosphere,” he said.
His conclusion is that the most productive way to increase the number of fuel-efficient cars on the road is perhaps one of the least popular ways — raise gas taxes.
“I have always been fascinated by how people sort themselves,” Kasim told GSA Business Report in an email while traveling outside of the United States. “For example, parents who are really concerned about education quality sort themselves in neighborhoods with good schools. Similarly, when gasoline prices increase, it is expected that households that drive more would sort themselves into more fuel-efficient cars.”
He said there are “tons of studies” that have established the link between an increase in gas taxes and the sale of energy efficient cars.
“When gasoline taxes increase there are three behavioral effects on consumption,” he said. “One, people purchase less gas and drive less; two, demand for fuel efficient cars increases, and three, households that drive more are the ones driving the fuel-efficient cars.”
Kasim said the third of those effects — households with fuel-efficient cars — has been studied the least and is what his research focuses on.
“To embrace the importance of this third effect, if a household does little driving, the fuel efficiency of its car has little impact on overall consumption. At the extreme, a car parked in the garage burns no gas regardless of its fuel efficiency, whereas if a household drives great distances the fuel efficiency of its car matters a good deal,” Kasim said in the email.
Conversely, if a car is very fuel efficient, its use has little impact on overall consumption, he said, whereas if a car is not fuel efficient its use matters a lot.
“What I find is that a 50-cent increase in the gas tax would reduce U.S. gas consumption by 0.8% through this effect alone, bringing annual environmental benefits of about $1.7 billion,” he said.
In summary, Kasim said gasoline taxes, as a policy instrument, are “much more influential compared to other policies aimed at reducing the pollution generated by gasoline combustion.” He said Corporate Average Fuel Economy Standards is a popular policy in the United States. It sets emission standards for car manufacturers and hence increases the percentage of fuel-efficient cars on the roads.
“However, it does not create the right incentives for the polluter — the driver in this case — to reduce pollution,” he said. “On the other hand, gasoline taxes affect gasoline consumption through three different channels and hence are more effective.”
Carpooling and public transportation are alternatives that can impact traffic congestion and ultimately pollution. Kasim said efficient public transportation reduces the number of cars on the road and would certainly help.
“For example, when Taipei Metro (in Taiwan) opened a new rail transit, air pollution levels decreased significantly,” Kasim said. “Similarly, due to improvements in the public transportation system in London, the number of cars in metro London has decreased.
“Another policy that reduces the number of cars on the road is congestion pricing. Singapore is a classic example of this,” he added. “Unfortunately, carpooling has not been very effective — at times counter-productive — when it comes to reducing social costs of driving.”
South Carolina increased its gas tax by 2 cents for the third straight year on July 1. Kasim said that even though the purpose of the tax is to improve road infrastructure, the unintended positive consequences, although small, cannot be ignored.
“People will drive less, and households that drive the most will be sorting themselves into fuel-efficient cars,” he said.
However, at 20.75 cents per gallon, the tax is still quite low compared to neighboring states — 32 cents in Georgia and 36 cents in North Carolina. Kasim said the small increment in taxes will influence driving behavior, “but it will not be substantial.”