photo: Carina via flickr
There's lots of overlap between ending our oil addiction in the United States and combatting climate change, with setting a price on carbon (regardless of the mechanism used, be it cap and trade, a carbon tax, or something else) mostly being cast as being a solution for reducing the impacts of global warming. This is certainly true, but it also could go a long way towards reducing our oil usage as well. Perhaps its hugely obvious to say, but I'll still say it again. When burned in an internal combustion engine, gasoline and diesel fuel emits lots of carbon into the atmosphere--19.4 pounds of CO2 per gallon of gasoline and 22.2 pounds per gallon for diesel fuel in fact, according to the official EPA stats.
Externalizing Pollution Costs Means We All Pay For Them
To refresh your Economics 101 terminology, those carbon emissions (and the other air pollutants released from burning gasoline) are a negative environmental externality. In other words, they are quantifiable financial costs associated with the purchase and use of gasoline which aren't incorporated into the price consumers pay.
The externalized costs of pollution, when it comes to greenhouse gas emissions at least, can affect people literally on the other side of the world from where the polluting product is produced or consumed--with in many cases those people least able to adapt being the greatest affected. Indonesian farmer, photo: Danumurthi Mahendra via flickr.
Consumers Have Inaccurate, Incomplete Information
Not including these costs in the price consumers pay also creates a situation of imperfect information being made available to purchasers. In other words, the price paid does accurately represent the true cost of the good. By pushing part of the true cost of oil off to society as a whole (externalizing it) you've created a market failure that needs to be rectified if the entire market system enterprise is to work.
This is where setting a price on carbon comes in. Whether established as a carbon tax or through a carbon trading system, this price on carbon will, yes, increase the cost of gasoline, diesel, and all the other uses for oil.
Price Pollution & The Economy Will Adjust to Be Less Polluting
To an oil addicted society this may seem like self-imposed pain--admittedly there will be an adjustment period to go through (if certainly not one which can't be managed)--but it is both good and necessary for both the economy and the environment.
From a theoretical perspective, incorporating the cost of carbon pollution into the price consumers pay for products derived from oil gives them fuller information, which allows the free market to function more efficiently--and there's nothing most economists like better than a well functioning market.
From a practical perspective, raising the price of goods made from oil brings the comparative cost of them more accurately in line with those made from non-polluting materials, which are often now more expensive because of the de facto subsidy petroleum and other fossil fuels currently receive.
Effects Will Go Well Beyond Which Goods We Buy
This in turn will gradually shift consumer spending, habit and preference towards goods which are made from materials with no or lower carbon emissions. It will encourage city and town planning towards patterns which support more walkable and bikeable communities. It will encourage both public and private transit to be powered by low-carbon sources of energy. It will encourage long-distance shipping to be done similarly, in turn likely stimulating more localized and regionalized economies--with long distance shipping occurring only for those goods which either can only be produced in certain locations due to geography or where, even including the cost of transport, some competitive advantage still keeps costs lower.
Oil (and other fossil fuels) may well still be used for some products and applications once the now-externalized cost of carbon emissions are included in the price, if there simply isn't another good option for the task at hand, but the price of those products will more accurately reflect the environmental cost of doing so and their use likely curbed substantially.
The economy will adjust to the new conditions, adapting and innovating products because of the new pricing. The balance of jobs will shift, with jobs being lost in production of fossil fuels and new ones created in other areas, balancing them. Just like the environment adapting to changes, the economy will as well. And at least one aspect of humanity's impact on the planet upon which we, and the economy, utterly depend will be lowered.
More on Carbon Emissions:
What's the Best Way to Price Carbon Emissions: Cap and Trade, Cap and Dividend, or Carbon Tax?
Could Cap and Trade Cause the Next Sub-Prime Mortgage Scale Financial Crisis?
China to Establish Domestic Carbon Trading Program By 2015