Monthly Proposal No.9: increase taxes on fuel and invest in public transportation

Maybe this proposal seems rather overused and boring as it was already stated in several ways by several green politicians. Additionally, some maybe will judge it as naïve and economically harmful, because it could negatively affect workplaces within industries depending on fuel and similar input. Ultimately, some even will call it unfair, because in the short-term it directly affects hard working people who seemingly have no choice but to commute by car.

However, commuting by car every day just because one prefers a cheap, quiet or just habitual domicile in the periphery is not fair either. Additionally, believing that the rest of us can and will accept environmentally harmful economic activities is naïve too and making money because the government did not found a way to internalize external costs yet even is inefficient. Ultimately, that it is necessary to repeat a simple and in the long run inevitable proposal is rather sad than boring.

Of course, the extension of the public transportation system has to be provided first and it will be costly. However, ignoring the problem and hiding from politically uncomfortable and unpopular decisions will cost us all even more.

6 thoughts on “Monthly Proposal No.9: increase taxes on fuel and invest in public transportation

  1. I like your series of monthly proposals. But I wish you would be a little more specific. Why do you think increasing fuel taxes is “in the long-run inevitable”? How much do you want to increase fuel taxes (You don’t need to give me an exact number, but a rough range)? How do you (or anyone else) know the “correct” social cost of burning fuel?

  2. I’m sorry to dissapoint you, but the monthly proposals are kept short, simple and superficial by intention. I use them as a blog to collect and check thoughts, opinions and ideas. There are enough studies, which investigate this topic in detail – especially concerning your questions – but my intention was not to give a list of citations an interessted reader could find by himself. Instead I rather state: Don’t use unknown details and uncertainties enough other scientists are dealing with as excuse to stay inactive, when one (in my opinion) already can be stated for sure: regarding the ongoing climate change and its effects on health we burn a to high amount of fuel and have to set some incentives to reduce it.

  3. Well my problem is that I find it difficult to discuss policy proposals without at least some details. So let’s do some math:

    According to the study below from the Unversity of Cambridge, the marginal social cost of CO2 is $120 per tonne in 2008-Dollars. That’s roughly $135 now. A typical Diesel motor emits about 2.6 kg of CO2 per liter. So the social cost of burning one (additional) liter of Diesel is about $0.36. That’s what the optimal Pigou tax on Diesel would have to be.

    Now in Austria the MÖSt (tax on mineral oil) is already €0.397 which is equal to $0.531. So this implies that we should actually lower, not raise, fuel taxes.


    • Very nice. I appreciate such studies and when we have enough time for fine tuning we maybe should relie on such papers. But as long as the world is heading to its collapse and people in cities have health issues because of our extensive use of carbon fuel you have to excuse that math and marginalism alone does not convince me to reject my proposal – and I even doubt those results or at least implications.

      • I’m sorry that I always have to play the squeaky wheel, but I can’t let you go on this one.

        I’m not talking about “fine tuning”. I’m talking about the possibility that your policy proposal has the sign wrong. If we take existing estimates of the social cost of CO2 emissions at least a little bit seriously, it seems as if Austria’s fuel tax is too high, not too low. If you want to argue for an increase in fuel taxes you have to explain what’s wrong with those estimates.

        And by the way, the number in the report cited above is a very high estimate. The IPCC gives an average estimate of $12 per tonne of CO2 with a range between -$3 and $95 per tonne.

  4. I think you did not get me. I really like the concept of marginal costs. However, in my proposal I did not mention them for a good reason: here we talk about negative effects on environment, human health and even lifes. In my opinion they are just priceless. You know what that means for the concept of marginal costs? You can not use them or at least have to estimate them infinite high, which implies an infinite high optimal tax rate regarding an efficient equilibrium at zero use of carbon fuel. I know that is not a real option now. Still it explains why I do not argue with such figures and estimations but keep it straight and simple: we use to much – increase its price and provide possibilities to substitute.

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