Carbon Pricing Cheaper Than Fuel Efficiency

Car smog

By Arman Kazemi

October 22, 2015

A new study has found it’s cheaper to reduce greenhouse-gas emissions with carbon pricing than with vehicle fuel economy standards.

The study, published by researchers at MIT’s Joint Program on the Science and Policy of Global Change, compared planned worldwide fuel economy standards for cars and trucks to region-specific carbon prices, extended to the year 2050.

If both methods were to yield identical emissions reductions, fuel economy standards would cost ten per cent of global GDP in 2050, compared with only six per cent for carbon pricing.

However, the authors did concede that the efficiency standards used in the study would reduce passenger vehicle fuel use by 47 per cent by 2050, compared to just six per cent under carbon pricing.

Still, the study estimated that current fuel economy standards will only reduce global carbon dioxide emissions by roughly four per cent by 2050, and that slight reduction will come at a relatively high cost.

"Many developed countries are choosing very expensive ways to reduce CO2 emissions, but if that’s a top priority, they should go with a price on carbon,” concluded Valerie Karplus, assistant professor at MIT’s Sloan School of Management and the study’s lead author, in a news release.

B.C.’s continent-leading carbon tax is a case study in carbon pricing.

The carbon tax turned seven earlier this summer and a policy review at the time found that the pricing scheme, introduced by the provincial Liberals under Gordon Campbell, was directly responsible for up to 15 per cent of the province’s greenhouse-gas reductions since 2008, all while producing “negligible effects on aggregate economic performance.”

Since its implementation, the tax has accounted for up to $6.1 billion in provincial revenues as of July 2015, which in turn was redistributed through a system of cuts and tax credits to low-income households, helping ease the blow of the pricing on the most vulnerable.