Americans drive less – what does that tell us?

It appears that, for the first time in 26 years, the average American is driving less.

Between March 06 and March 07, the figures suggest that Americans drove 200 to 300 million miles less than they would have if the growth rate had continued. According to government figures, the average price of gas rose by 18c from $2.37 a gallon to $2.55 in that period.

From this, we can work out what that implies would need to happen to the price of gas to deter more CO2 emissions.

The average American auto gets 17 MPG, so this implies a reduction per capita of about 21 gallons per year. If we attribute this all to the gas price, then a price increase of 18c has led to a decrease of 183kg of CO2 per person.

So, the tax one would have to levy to reduce CO2 by 1 (metric) ton would be 98c per gallon.

That translates to a value per ton of CO2 of $113.

This is a massive overvaluation of CO2. Sir Nicholas Stern valued the cost of CO2 at $85 per metric ton, but that is an outlier in the literature. Economist Richard Tol found that “It is unlikely that the marginal damage costs of carbon dioxide emissions exceed $50/tC [dollars per ton of carbon] and are likely to be substantially smaller than that.” [$50/tC = $14/tCO2]

In other words, a gas price sufficient to deter emissions is massively greater than the actual damages imposed by CO2.

Finally, it needs to be pointed out that despite the reduction by the average American, because of increasing numbers of average Americans, miles driven and therefore emissions are still increasing in toto. So the actual tax increase needed to reduce total emissions would be that much greater.

Tantaene molis erat