What A Gas Tax Can’t Do

Apr 25 2011 @ 2:45pm

Kevin Drum reads an IMF study on oil prices and demand. The data suggest even a large gasoline tax isn't likely to cut demand significantly. For the rich world:

In the short term, a 50% price increase [in the price of oil] produces a 1.2% decrease in consumption. In the long term, it produces a 4.7% decrease.

Jim Manzi nods:

[T]o the extent that we continue to progress in making non-fossil-fuels technology cheaper and more effective for an ever wider array of applications, we can accelerate the ongoing de-carbonization of our economy. The idea of economists to use artificial scarcity pricing to do this is aggressively marketed in blogs, magazines and TV shows, but is extremely unlikely to work, because the current price elasticity of oil is so low. The work of engineers and physical scientists, however, is likely to be determinative.

Bummer. But it could help finance the wars waged in part because of the salience of the Middle East to oil supplies.