January 2015

Our friends at the Washington Business Alliance are giving a bit of push-back against carbon taxes:

Only a high carbon price, in excess of $50/tonne, will materially alter electricity generation given the dispatch order of plentiful, cheap coal and natural gas. Transportation fuels are relatively inelastic, similarly requiring a high price and long-term commitment to meaningfully impact emissions.

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If there’s one thing everybody knows about carbon pricing, it’s that there’s not much effect on consumption of transportation fuels. In econ-speak, the explanation is that demand is very inelastic: a price increase of (say) 10 percent reduces consumption by much less than 10 percent. In plain English, the explanation is that driving is something that people “have to do”, so price changes don’t have much impact on how much driving people do. (more…)