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Surprise! Current Motor Fuel Taxes Exceed the Estimated Social Cost of Carbon (SCC) in Most Industrialized Countries

“Simple math demonstrates that the average taxes (including duties) on gasoline and diesel in virtually every developed country exceed the average U.S. EPA’s (over)estimated global social cost of carbon now and through 2025 (at least). In fact, motorists in most European countries already pay taxes in excess of the upper bound estimate of the social cost of carbon through the middle of this century.”

According to the U.S. Environmental Protection Agency (EPA), the average global social cost of carbon (SCC), which is the level at which a global carbon tax should theoretically be set, ranged from $5.6 to $41.8 per tonne of carbon dioxide in 2010 (in 2012 US$), and should rise to between $18.7 and $77.4 in 2050 (as shown in Table 1). Per the EPA, the “central value” is represented by the “3% Average” column in the Table. Upper bound estimates are obviously much higher (see last column). [1]

There are several good reasons to believe that both average and upper bound SCC estimates are severely overstated. Suffice it to say that the major reasons for this are, first, the globe is warming much less rapidly than projected—not to be confused with “predicted”—by models of the same vintage as the models used by EPA to estimate SCC, that is, models from the 1990s and early 2000s [Ref. 2, pp. 4–13].

Second, the SCC estimates downplay, if not ignore, technological change that ought to occur over the next century or more and increase adaptive capacity, if the past couple hundred years are any guide. This means that impacts would be much lower than projected, particularly for the poorest countries which are deemed to be most at risk from global warming [Ref. 2, pp. 13–21]. No matter, for this exercise let’s assume that EPA’s SCC estimates are accurate.

Table 1: Social Cost of 1 Tonne of CO2, 2010 – 2050 (in 2012 dollars), updated from EPA, Social Cost of Carbon, Technical Support Document, using Federal Bank of Minnesota, CPI calculator.

Table-1

To get a feel for the quantities involved, consider that one U.S. gallon of gasoline produces 19.6 pounds of carbon dioxide, that is, roughly 110 U.S. gallons of gasoline would produce 1 tonne of CO2. On the other hand, it takes about 100 gallons of diesel to produce 1 tonne of CO2. [3]

COMPARING TAXES ON MOTOR FUELS TO A NOTIONAL TAX ON CARBON DIOXIDE

U.S.:  Currently, the average combined U.S. federal, state and local gasoline taxes amount to 49.5 cents per U.S. gallon (I’ll round it off to $0.50 a gallon). [4] Thus, gasoline in the U.S. is already being taxed at an equivalent rate of $55 per tonne of CO2. Similarly, combined diesel taxes are 54.6 cents per gallon [4], which would be equivalent to $54 per tonne of CO2. [3]

But according to Table 1 these amounts exceed the average social cost of carbon now and through 2025 (at least). Therefore, based on the average SCC, there is no justification based on the externality of carbon dioxide emissions for regulations (or new taxes) on U.S. motor fuels or motor-fuel-consuming vehicles between now and at least 2025 or, based on the central value, 2050. [This includes rules mandating specific levels of biofuel usage in motor transport.]

Europe:  Table 2 shows for 27 European countries what the combination of excise duties and VATs for gasoline (petrol) and diesel translates into in terms of dollars per tonne of CO2 emitted.

Table 2: Equivalent CO2 tax (2012 US$ per tonne of CO2) for gasoline and diesel based on combined excise duties and VAT, European countries, May 2012. Sources: Refs. 3, 5 and 6.

Table-2

A comparison of Tables 1 and 2 indicates that many drivers in these European countries are already paying double or triple of what even an upper-bound global CO2 tax ought to be through the middle of this century ($162).

The numbers suggest that the motorists probably already pay a substantial share of the total SCC attributed to all fossil fuel sources in several of these countries. Consider the U.K., for example. Based on fuel usage [Ref. 7, p. 23] and data from Table 2, U.K. motorists paid $49 billion in 2010 in duties and VAT (assuming 1 Euro = $1.25).

Total CO2 emissions from energy consumption in all sectors that year amounted to 492 million tonnes (of which 25% was from the transportation sector). Motorists, therefore, paid the equivalent of $100 per each tonne of CO2 from all fossil fuel combustion, or $400 per tonne of CO2 from all transport sources.

CONCLUSION

Simple math demonstrates that the average taxes (including duties) on gasoline and diesel in virtually every developed country exceed the average U.S. EPA’s (over)estimated global social cost of carbon now and through 2025 (at least). In fact, motorists in most European countries already pay taxes in excess of the upper bound estimate of the social cost of carbon through the middle of this century.

Qualitatively, these results would hold even if the social cost of other greenhouse gases were included.

Therefore, it seems there is no greenhouse gas–related rationale for regulations (or new taxes) on motor fuels or motor fuel consuming vehicles between now and 2025 (at least).

REFERENCES

[1] Social Cost of 1 Tonne of CO2, 2010 – 2050 (in 2012 dollars), updated from EPA, Social Cost of Carbon, Technical Support Document, using Federal Bank of Minnesota, CPI calculator.

[2] Goklany, Indur. 2009. Trapped Between the Falling Sky and the Rising Seas: The Imagined Terrors of the Impacts of Climate Change. University of Pennsylvania Workshop on Markets & the Environment, December 13 2009.

[3] Energy Information Administration, How much carbon dioxide is produced by burning gasoline and diesel fuel?.]

[4] American Petroleum Institute. Motor Fuel Taxes, April 2012.

[5] Europe’s Energy Portal. 2012. http://www.energy.eu/.

[6]Conversion factors: 1 Euro = $1.25; 3.78 liters = 1 U.S. gallon.

[7] U.K. Department of Energy and Climate Change. 2011. U.K. Energy in Brief 2011.

12 comments

1 Tom Tanton { 05.30.12 at 8:31 am }

Nice post Indur. The “overpayment” is likely even worse than you indicate, as the “social costs” estimates seldom include social benefits of carbon (modern energy). Of course that is a more difficult quantification, as there are multiple alternative energy sources for many–but not all– energy applications.

2 Andrew { 05.30.12 at 9:09 am }

One wonders why the EPA bothers to estimate the “social cost” when it plans to regulate under the Clean Air Act, under which no cost benefit analysis is required, IRRC.

Of course, much of the “social cost” estimates depend on pointing to all kinds of papers claiming negative impacts…that haven’t been observed in the real world. I believe even some of those studies that use all kinds of false scare stories to estimate the costs show net benefits.

3 Robert { 05.30.12 at 9:39 am }

You do realize that fuel taxes are used to pay for road maintenance costs, don’t you? That’s a relatively uncontroversial public policy that aligns the cost payers with the cost causers (or the beneficiaries). Of course, there are still major subsidies to road infrastructure beyond these taxes, i.e. government dollars devoted to road infrastructure investments. I’m sure anti-government folks like you are opposed to those subsidies, right? Or does that clash with this website’s funding from the Koch brothers and other elements in the fossil fuel industry that want more demand for their product.

4 Jon Boone { 05.30.12 at 9:47 am }

The conclusions here seem conservative, given that the “negative” social costs don’t seem to have factored in the “positive” social costs of carbon. Even a little thinking should demonstrate to fair minded people that the positives from carbon usage far outweighs the negative.

But, for me, there is a tiptoeing through the tulips aspect to this kind of analysis. The very idea of cataloging, then computing, the social costs of carbon seems a fey enterprise, similar to accounting for the number of angels that can sit upon one’s head–yet more make work for economists/accountants in ways that have no substantive transparency or accountability, with a warp of slippery definitions and a weft of statistical cul de sacs.

5 rbradley { 05.30.12 at 10:40 am }

Mystery Man Robert:

Indeed, road taxes were inaugurated with the lobbying help of the (young) American Petroleum Institute, which is discussed here: http://www.masterresource.org/2010/03/big-oil-wants-a-carbon-tax-on-motor-fuels-back-to-1919/.

The Koch connection to this website is misplaced and a low blow. This website is more me than anyone else. It exists from in-kind support from all of the bloggers. MasterResource is a movement-wide blog, and I am responsible for its content, good and bad.

As a foe of political capitalism and friend of free markets, I am an intellectual ally of Charles Koch’s Principled Entrepreneurship(tm) against rent-seeking by T. Boone Pickens or Aubry McClendon or James Rogers (Duke) or anyone else. I believe that Principled Entrepreneurship(tm) is superior to Milton Friedman’s profit-maximization model for what is popularly known as ‘corporate social responsibility.’ Friedman’s ideal does not preclude rent-seeking in the name of fiduciary responsibility.

If you or I find out about ‘rent-seeking’ by any company, including Koch Industries, let’s offer constructive criticism.

6 Ed Reid { 05.30.12 at 12:25 pm }

Robert @ #3

“Of course, there are still major subsidies to road infrastructure beyond these taxes, i.e. government dollars devoted to road infrastructure investments. I’m sure anti-government folks like you are opposed to those subsidies, right? ”

There are no such thing as “government dollars”. There are only taxpayer dollars, regardless of the taxing vehicle used to extract them.

There is a significant difference between being “anti-government” and being opposed to uncontrolled growth of intrusive “big government”.

Perhaps you could arrange for someone like John Forbes Kerry to help you learn to use more “nuanced” arguments.

7 Jon Boone { 05.30.12 at 1:57 pm }

Good for you, Rob. Perhaps others are as weary as I am of the Koch Brothers as straw men for churls like Robert.

From what I’ve gathered, the Koch Brothers, particularly via the David H. Koch Foundation, are major supporters of science education. That they’ve been pilloried by The New Yorker and attacked by AWEA, Sourcewatch, The Sierra Club, and other zombotic organizations that wouldn’t know the importance of firm capacity to electricity from a hole in the ground, should be a mark of their importance.

Arguments based upon ad hominem methods should be dismissed out of hand. Arguments based upon inaccurate ad hominism should be ridiculed.

8 Indur M. Goklany { 05.30.12 at 8:50 pm }

Tom and Jon: Both of you make an excellent point. I was recalcitrant in not noting that the EPA calculation does not account for the social benefits of carbon/energy use. I–and I am sure others, as well–have noted the vast benefits that flow from fossil fuel energy use, not all of which are accounted for in market transactions. You may be interested in the following discussions on Watt’s Up With That:

1. The Contribution of Fossil Fuels to (a) Feeding Humanity and (b) Habitat Conservation? Available at http://wattsupwiththat.com/2011/12/11/the-contribution-of-fossil-fuels-to-a-feeding-humanity-and-b-habitat-conservation/.

2. Linking health, wealth, and well being with the use of energy at http://wattsupwiththat.com/2009/10/12/linking-health-wealth-and-well-being-with-the-use-of-energy/

Robert This post deals with taxes/duties on motor transport fuels rather than the disposition of revenues collected from them. However, I have to doff my hat to you. It’s not often one sees so many irrelevant points and an ad hominem in such a short post.

9 rbradley { 05.31.12 at 7:45 am }

‘Mystery Man Robert’ is both a fraud and a coward. He fictitiously used a name and an email address to impersonate a Robert —— that we all know and like.

But his fake post, intended to cause trouble, was worth posting and rebutting anyway.

10 Indur Goklany: Surprise! Current Motor Fuel Taxes Exceed the Estimated Social Cost of Carbon (SCC) in Most Industrialized Countries | JunkScience.com { 05.31.12 at 9:47 pm }

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11 Weekly Climate and Energy News Roundup | Watts Up With That? { 06.03.12 at 5:48 pm }
12 wpugh { 05.07.13 at 9:24 pm }

The environmentalists who work in an office or attend any meeting would be shocked to realize that they are breathing CO2 that is 1200+ppm. Somebody should take a reading in a room of several thousand people. That’s one of the major reasons for having offices with a lot of live plants.

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