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Re: Innovation and the Gas Tax



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Ryan Avent has posted a response to my argument that the example of sustained gas taxes of several dollars per gallon several major Western European countries undercuts the assumption that any politically-feasible carbon price in the U.S. would induce technical innovation that could materially de-link economic growth from carbon dioxide emissions. I presented two arguments for this:

1. Europe is a huge, advanced market that has had these taxes for decades while internal combustion has remained a very stable technology, and people have continued to make choices from among broadly pre-existing technologies such as mass transit, bicycles, walking and so forth.

2. Even if other conditions mean that we can now create qualitatively different technical innovation in the near future, Europe provides a big enough market to induce this, and there is no obvious reason why the incremental market that would be provided by the U.S. would make much difference.

In response, Ryan argues:

In general, Europeans do drive different automobiles, which tend to be smaller and more efficient. Some of these have been innovative enough in their design to generate raised eyebrows from American tourists (see: the Smart car). In Europe, the scooter is far more popular and differentiated (the scooter with roof is a common sight). Bicycles are also more common and differentiated, and the institutional supports for cyclists are more highly developed (cycle superhighways are old news in Europe).

And then there’s public transport. From buses to trams to trains to high-speed rail, Europe is well ahead of America. When American transit systems go shopping for vehicles, they generally look to European manufacturers. When the District sought a technology that would allow the city to run streetcars without using overhead wires, it looked to France’s Alstom and Canada’s Bombardier (Canadian gas tax rates are considerably higher than those in America). And transit innovation goes beyond vehicle technologies. It includes fare-gathering methods, scheduling, system design and maintenance, and so on.

Brad Delong’s blog has picked this up, and several commenters on my blog post have made the same basic point.

This strikes me as, at best, a word game. It’s like saying that in response to an increase in the price of peanut butter, I “innovated” by making smaller sandwiches and eating ham-and-cheese more often. If by “innovation” in response to higher gas prices, we mean switching to smaller cars and taking the bus and riding bicycles more often, then I agree entirely that higher gas prices in the U.S. will induce innovation.



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