Bayesian Investor Blog

Ramblings of a somewhat libertarian stock market speculator

Help oil smugglers to slow down global warming

Posted by Peter on November 6, 2007
Posted in: Politics. Tagged: climate.

While there is much debate about whether we should respond to global warming by taxing CO2 emissions at $2 per ton or $140 per ton, there are countries with policies that are roughly equivalent to rewarding CO2 emissions at levels that appear to exceed $100 per ton.
I’m referring to gasoline pricing rules that keep gas prices at the local consumer level way below the global market price. Venezuela is a dramatic example, China has prices that are modestly below the market price, but that applies to an important fraction of the world’s gas use, and last I heard Iran and Iraq were practically giving away whatever gas became available to their consumers (it’s sad that Iraq was invaded by a government that didn’t think freer markets would help Iraq). These policies would be wasteful even if CO2 emissions were good (e.g. due to causing long lines to get gas).
Even if those low prices are implemented in a way that helps the poor in those countries, it causes nontrivial increases in gas demand which drive up gas prices in the rest of the world (at least in the short run; the long run price changes depend on the cost of finding new oil).
People who care enough about global warming to make modest efforts to slow it should put pressure on these countries to charge market prices for gas. In addition to traditional techniques, one obvious response is to exploit the inherent instability of these price differentials by giving as much aid and protection as is practical to the heroic businessmen who smuggle gas from low price regions to regions where marker prices prevail. If governments of Europe and the U.S. cared enough about global warming, they could probably enable enough smuggling to measurably reduce the waste of gas in many smaller countries. But that would probably still leave significant waste in China, and I’m not sure what can be done about that.

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