An env-econ reader asks about a monetary estimate of the social costs of gasoline. I became excited about developing what is almost sure to be a somewhat bogus back-of-the-envelope estimate and using it as a front to pursue the gas tax proposal. Here goes ...
An estimate of the total external health/air pollution costs of motor vehicle use is $33 billion (2005 $). I took the average of the four health cost/air pollution numbers in the tables of a 1998 review paper, UCD-ITS-REP-98-22, after kicking out the one from the NRDC (a whopping $120-$220 billion in 1990 $).
According to the Energy Information Administration current gasoline demand is about 9 million barrels/day (I rounded down since the numbers at the EIA, 9+ million barrels/day, are for the summer driving season). A barrel holds 42 gallons so gasoline demand is roughly 138 billion gallons/year.
Therefore, the social cost of driving is about $0.24/gallon ($33 billion/138 billion).
The federal tax on gas is $0.184/gallon and state taxes average $0.21/gallon (source: EIA). According to the UCD review, the air pollution costs are anwhere from 5%-20% of the total social costs so the current tax does not cover the external health costs. Plus, it is hard to argue that current gasoline taxes were imposed to reduced gasoline use, emissions, and to improve health.
So ... and here is my fav environmental policy recommendation ... let's raise gas taxes by at least a quarter of a dollar!
The brave reader should take a look at Fullerton and West, JEEM, 2002. Abstract:
An emissions tax is efficient, but measurement of every car's emissions would be inaccurate and expensive. With identical consumers, we demonstrate the same efficiency for: an emissions tax; a gas tax that depends on fuel type, engine size, and pollution control equipment (PCE); a vehicle tax that depends on mileage; or a combination of uniform tax rates on gasoline and engine size with a subsidy to PCE. With heterogeneous consumers, efficiency can be obtained by a vehicle-specific gas tax or mileage-specific vehicle tax, but not by flat rates. We characterize second-best uniform tax rates on gasoline and on car characteristics.
In other words, we can figure out a gas tax that would come close enough to the efficient and preferred emissions tax.
So, what's not to like about a higher gas tax?
Note: Everytime I end a post like this I bring out all the econ-haters, on both sides. I think the libertarians will be busy this weekend.
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