USA Africa Dialogue Series - Infrastructure planning today determines what carbon taxes can accomplish tomorrow

Traffic congestion, air pollution, accidents – the negative externalities from car transport are not just a popular field of economic research, but also a daily arduous reality for millions of commuters around the world. However, there is more: carbon emissions and climate change may be a less visible externality from road transport, but the economic and social costs will be substantial and borne at a global scale.

When dealing with such externalities, pricing instruments (such as carbon or fuel taxes) are the policy response favored by economists: if car users paid the full cost of driving, they would adjust their driving practices and thus reduce the negative environmental and social impacts.

However designing such price policies is by no means easy, and poses a key question to policy makers: By how much will consumers adjust their car use in response to a given price change? The answer to this, is what economists call the price elasticity of car use. It measures the extent to which car use decreases, when the price of driving one kilometer increases, for instance due to an increase in carbon or fuel taxes. If the elasticity is high, a small increase in fuel prices will lead to a large reduction in car use and thus large social benefits from avoided pollution, congestion and accidents. However, if the elasticity is low, a much higher price increase is needed for the same impact.

So, can forward-looking infrastructure planning today influence this elasticity, and make it easier to reduce the negative effects of excessive car use in the future?

Link:http://blogs.worldbank.org/developmenttalk/infrastructure-planning-today-determines-what-carbon-taxe...

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Yona Fares Maro

Institut d'études de sécurité - SA

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