The right price to pollute

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Today, Gardner and Clark evaluate government policies aimed at altering consumption habits. Previously, they discussed increasing food prices and whether global trends in overall supply and demand portend a coming era of scarcity. Later in the week, they'll debate the emergence of China and India as major resource consumers and more.


Commentators have noted that a gas-tax holiday would encourage the use of gasoline, a vital resource. True enough. Less noted is that the proposal would also further stress the atmosphere -- another vital resource because of its central role in regulating our climate. The proposals by John McCain and Hillary Rodham Clinton would, in sum, mismanage at least two precious resources. In a "full world" characterized by greater competition over resources (see my Monday post), the United States needs leadership that understands the value of the planet's natural endowment and works to preserve it.

Washington can do many things to conserve resources, starting with exercising its own fiscal and regulatory powers. Imagine our candidates shelving the tax-holiday idea and debating instead how to reshape transportation to provide cleaner and cheaper mobility choices. Subsidies for hybrids? More investment in public transit and less in highways? Inexpensive initiatives such as public bike-rental programs, which are all the rage in Europe? More parking spaces for car-sharing programs? These would help address voters' concerns about expensive transport, acknowledge a shift to an era of more expensive driving and conserve oil and healthy atmospheric space in the process.

Governments can also shape markets to conserve resources. Carbon markets like the one created by the European Union harness the efficiency of a market to address the vital environmental goal of reducing greenhouse gas emissions. Water markets can be designed to conserve water and provide for basic needs by allowing an affordable lifeline level of service to all, with escalations in price as demand increases. As demand for finite resources climbs, governments will need to set boundaries for a variety of resource markets, from catching fish to harvesting timber to mining copper.

Governments can also set up conservation tools that are neither public nor private -- a "commons" approach to resource management, for example. Peter Barnes, in his book "Capitalism 3.0," advocates setting up trusts charged with preserving forests, the atmosphere and other commons. Imagine trustees limiting use of a resource -- only as much carbon as the atmosphere can safely absorb, for example -- and charging for that limited access. Imagine further that the revenues are paid out as an annual dividend to the resources' owners -- all of us. Trusts could help preserve resources and give an income boost of particular help to the poor.

Should governments work to preserve resources? Yes; sometimes directly, sometimes by shaping markets and sometimes by creating new institutions. In a full world, there is too little room for error to leave resource management to markets alone.

Gary Gardner is a senior researcher at the Worldwatch Institute, where he is also co-director of the report, "2008 State of the World: Innovations for a Global Economy."

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Gary,

I agree the Clinton-McCain gas tax "holiday" is a uniquely bad proposal. It is so beyond the absurdities of normal political pandering that it has united economists of all stripes together with environmentalists like yourself in loud opposition.

It is absurd for so many reasons. It is administratively cumbersome for a tiny net benefit to the average American: about $30 a year or less. It would encourage oil imports at a time when we should be cutting back. And in states where refinery capacity is tight, such as California, gas prices would not fall with the tax holiday. The refiners, already gorged on windfall profits, would be the beneficiaries.

Taxes on gas are much higher in Europe than in the U.S. Should we now follow that example? Gary, on oil I would agree that we should tax until it hurts -- and then tax more.

The true social costs of oil are still far greater than the prices at the pump. Those costs include global warming and the failure to charge drivers fully for the costs of using public roads. Oil is imported from politically unstable regions of the world. The U.S. must invest heavily in military forces to discourage supply disruptions; the people driving giant SUVs should bear that cost. As a colossal demander of oil on the world market, the U.S. can reap some gains from imposing high taxes, which would drive the price of oil down by reducing demand.

The time to start imposing higher gas taxes would be when pump prices start to decline from their current record-breaking levels. But as the presidential campaign illustrates, until the temperature regularly tops 150 degrees in downtown L.A., there will be no significant support for such taxes.

But I do see troubling tendencies in your answer, Gary, when you start listing the various interventions and government mandates you think should be imposed. You are one of those environmental do-gooders who would have the government intervene in nearly every aspect of my life. Such mandates are often ill designed and unnecessary.

I would probably be forced to install a low-flow toilet that clogs all the time and a low-flow shower head that spits dribbles of water at me. Yet water, even in California, is still a cheap and abundant resource. The typical cost of water in the state's cities is about $0.0003 per gallon. Most of the water in California is wasted on low-value farming uses. The problem is not some extra gallons in my shower or my toilet; it is the political system that fails to force farmers to surrender that low-value water and let the people in the cities use it. With very modest price increases on city dwellers, even Southern Californians could wallow in cheap, clean water without running out of the stuff.

So by all means, let's have people pay the full cost of the commodities they consume. But let us also leave it up to those people and not some environmental priesthood to decide whether they want to carpool to save gas or go low-flow to save water.

Gregory Clark is chairman of the economics department at UC Davis. His recent book is "A Farewell to Alms: A Brief Economic History of the World."

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