March 12, 2008
Department of unintended consequences, gas-guzzler edition
It is always worth scrutinising any government policies for unintended consequences. (I suspect that even politicians do this, but rarely care as long as the headlines sound good.) Alistair Darling’s do-nothing budget will have few consequences, positive or negative.
But I did spot one: the “showroom tax” on less efficient new cars is designed to raise cash and make Darling look green, and it may achieve those aims. But is it good for the planet? That depends on whether it persuades people to buy smaller, more efficient new cars, or whether it persuades people to drive their old, heavily-polluting gas guzzlers around for longer than they otherwise would have done. I have no idea which effect with predominate, and I suspect that Mr Darling doesn’t either.
A tax on a specific type of vehicle is, incidentally, gesture politics. Big cars don’t hurt the planet unless they are driven around; when they are driven around, their drivers pay a high duty on fuel. Trying to reduce emissions by targeting the type of car is a clumsy, round-about way to achieve a sensible goal.
Large cars are already expensive and wealthy people buy them, so I’d guess taxes on big cars don’t move the dial much either on people holding on to old cars or on shifting new buyers towards smaller cars. Price inelastic demand - good for raising revenue, not good for changing behaviour via taxation.
However, if the govt was to impose a large tax on new sales of big cars and turn it into a subsidy for new sales of very efficient small cars, that might move people out of their inefficient old cars into new inefficient small cars. The same tax-and-subsidy scheme could be applied to the annual road tax. We could pay people to move onto more efficient cars.
Posted by: Luis Enrique | March 12th, 2008 at 5:22 pm | Report this commentoops - I mean new efficient small cars.
Posted by: Luis Enrique | March 12th, 2008 at 5:23 pm | Report this commentBut does that take into account the environmental cost of manufacturing new cars? A quick Google search turns up this article, which says a rough estimate used is that manufacturing accounts for about 10 to 20% of a car’s total energy consumption. In the UK cars don’t tend to be kept for a long time anyway, so those on the roads are mostly recent - perhaps it’s not necessarily a bad outcome if people to keep driving their ‘old’ cars a bit longer?
Posted by: Kate | March 12th, 2008 at 5:41 pm | Report this comment“Big cars don’t hurt the planet unless they are driven around; when they are driven around, their drivers pay a high duty on fuel.”
That’s certainly true, but to what extent does the duty on fuel actually discourage the driving? A high upfront cost might act as an incentive to buy a different, more efficient car, which then uses less fuel over its lifetime. Once that car has been bought, though, the choice is between driving it or not, for any particular journey, and the cost of the fuel, even with a high duty, might not be enough to make it more worthwhile to take public transport or simply not make the journey. I don’t know if there are any studies on the issue, but I can’t believe it’s as clear-cut as you suggest.
Posted by: Tom | March 12th, 2008 at 8:39 pm | Report this commentI don’t think that the price signal outlined in the budget will have much of a bearing on decisions about whether or not to buy a new car and what type of car to buy.
But if it were made large enough, I think you’re right: if you want to use a price signal, you should attach it to what you’re trying to control - emissions.
Also worth noting - around 30% of the greenhouse gas emissions associated with a car, over it’s lifetime, are in manufacture. That’s a lot - so you have to drive your new efficient car quite a long way before you’ve paid off it’s ‘capital’ emissions.
Posted by: Dan | March 12th, 2008 at 9:29 pm | Report this commentIt’s true - the large car tax is largely gesture politics that is unlikely to either change behaviour or raise revenue much.
The sad fact is that MUCH higher fuel taxes would make a difference, encouraging walking, cycling, public transport, encouraging local food produce, discouraging suburban sprawl, etc. Because demand is inelastic so a lot of people would still be forced to use cars, but that is precisely the fact that means a lot more revenue WOULD be raised, which could then compensate those who most need it.
But Darling does not have the courage to do it; not a party-loaded point, neither would any one in his position, it’s political suicide.
Posted by: RNB | March 12th, 2008 at 9:31 pm | Report this comment[…] has left me cold. Smug (see Oliver Hartwich’s post on Coffee House) and do-nothing (but see Tim Harford’s Undercover Economist blog on FT.com). I have been far more struck today by the statistic told me at supper this evening […]
Posted by: Why people struggle « Enough said | March 12th, 2008 at 9:42 pm | Report this comment[…] Tim Harford notes that the reformed vehicle duty will discourage people from buying new inefficient cars, but might not necessarily reduce emissions. It might mean that people drive old, even less efficient cars instead. There was no unambiguous pricing of greenhouse gases in the budget, and that is what we need - clear price signals. […]
Posted by: Budget 2008: even limper than expected green measures « In Balance | March 12th, 2008 at 10:53 pm | Report this commentTaxes on petrol are regressive because they hit people who need to drive even if they choose the most environmentally friendly way to do so. For this reason, a tax on gratituous consumption such as we have seen today is not “clumsy”. Fuel prices and car tax already make 4×4s a bad bet in purely financial terms. The “showroom” tax is a response to a general tendency to fail to calculate the lifetime costs of running these beasts. At first sight, that might appear irrational but in reality it is a rational response to endemic irrationality. The tax also provides an important signal of social disapproval which will discourage some from such selfishness. The only problem is that it is not nearly enough.
Posted by: Craig | March 12th, 2008 at 10:56 pm | Report this commentAs a very large proportion of UK motorists drive “previously owned” vehicles I can see that some mechanism that allows these subsequent owners of cars to communicate with the manufacturers has a benefit. Something that ensures environmentally friendly cars gain the same benefits as well built, reliable, or just downright flashy ones. If this is done through a tax, it surely has to be one that stays in place for a decade. I personally don’t believe that any exemption for “green” cars will last long enough to make buying one worthwhile.
What I would like to see is all car owners given a free bus pass every year - just so see if it’s really that important to them to drive everywhere.
Posted by: Michael Saunby | March 13th, 2008 at 11:54 am | Report this commentEven gesture politics have the INTENDED consequence of sending a message. Attaching a stigma to large cars might dissuade people from driving them around, and every little bit helps…
…owning (even if not driving) a big care could hurt the planet if it encourages others to want/buy/drive a big car…
…individual decisions have unintended consequences too.
Posted by: Dave | March 13th, 2008 at 3:03 pm | Report this comment