[Previously: parts 1, 2, and 3.]
Let’s talk about gasoline taxes. As I pointed out in previous posts, gasoline consumption is lowered only slightly by an increase in prices. While this makes it difficult to reduce consumption (and carbon dioxide emissions), it does give us the opportunity to raise an enormous amount of revenue. And while gasoline consumption may not decrease much in percentage terms, when slight decreases in per capita consumption are multiplied across the entire population of the US, the result can be formidable. When combined with unemployment, a price increase can actually decrease per capita consumption. Also, it seems like once prices started hitting $4/gallon, demand really nosedived.

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Clearly, gasoline prices are volatile. We know that much. Wouldn’t it be great, from the consumers’ point of view, if a gasoline tax actually fixed prices at $4? A large (and volatile) portion of people’s expenditures would now become a predictable budget item.
In other words, the price faced by the consumer will always be $4. If gas costs $2.50, the tax rate is 60%, and revenue per gallon is $1.50. If it costs $1, the tax rate is 300$, and revenue is $3.
If gas costs $4.50, the consumer still pays $4. Revenues from previous months make up for the price difference, and, in effect, citizens receive a 50 cent subsidy.
This idea would obviously never work in the U.S. due to political reasons, but is still an interesting exercise.
***
How much revenue would a tax of this kind generate? By what percentage would US carbon dioxide emissions be reduced?
Using our demand equation, unemployment data, and plugging in a value of $4, we can find out the answer for 2009. Because the equation was estimated using seven years of price, consumption data, and unemployment rates, we can figure out how people might adjust their consumption if prices were to go up. That’s the point of it all.

Revenue of $210 billion and foregone carbon dioxide emissions of 45 million tons. That represents nearly a 4% decrease from 2009 vehicular carbon dioxide emissions. Not bad!
Now, what to do with all that revenue?
[Oprah voice] E-very-body gets an electric car!
Tuesday, April 13, 2010 | 23:32
Filed under: Energy/Environment, Politics/Society by Dries
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