sectoral economic costs and benefits of ghg mitigation - IPCC

Michael Whinihan
Discussion: Personal Transport 1
Michael Whinihan
What is the justification for imposing mitigation targets on one sector, namely transportation, to
meet Kyoto targets? It makes no economic sense to impose equal targets on all sectors because
the net costs of mitigation are different for different sectors. (The estimated net costs for the
transport sector are much higher than for some other sectors perhaps $1000 per tonne of carbon
mitigated.) It is wasteful to require a sector such as transport, with high mitigation costs (because
of the difficulty of substituting away from oil) to achieve the same proportional reduction as
other sectors. An overall solution to the mitigation problem is the imposition of a carbon tax
applying to all sectors at the same rate. This would be a cheaper and more efficient solution than
imposing fixed arbitrary targets on different sectors.
In addition, road fuels are highly taxed in many countries already and the rates are likely to be
above the rates of carbon tax required to meet Kyoto targets. For example, gas taxes in the EU
are already $0.65/l higher than in the US, the equivalent of $1000/tonne carbon tax, 2 to 3 times
higher than is needed for EU Kyoto compliance. If an EU country wanted Kyoto compliance at
minimum cost, it would impose a uniform carbon tax of perhaps $400/tonne, or only about
$0.26/l. But gas taxes in the EU may already exceed other externalities by more than $0.26/l, so a
case could be made that transport is already doing too much and that gas taxes should be
reduced.
There are instances where market mechanisms like a carbon tax may not be sufficient. Suppose a
new technology would be cost effective, but has trouble starting up because of infrastructure
barriers. For example, switching vehicles to cellulosic ethanol would face such barriers. In such a
case, there would be justification for government intervention; such as tax credits to gas stations
that install ethanol pumps or to consumers that buy ethanol fueled vehicles.
1
The discussion here represents the personal view of the discussant as an economist.
207