The Bellows » Innovation, and the Gas Tax: I’m not sure why anyone would argue that the imposition of a carbon price, even a relatively modest one, wouldn’t spur innovation. Price increases — the market’s signal for scarcity — lead to a range of human responses, among the most important of which is invention. The opinion that a price increase will likely lead to innovation is little more than a ratification of the idea that markets generally work. But Jim Manzi seems skeptical of this connection. And he cites variations in the gas tax rate as evidence:
Consider as an important example that most major Western European countries have had very high gas taxes – typically several dollars per gallon – for decades. But despite the efforts of lots of very smart engineers, the automobile has been a pretty stable technology for these same decades. [...]
If you look closely, you’ll find that Manzi has gone and made the case for a carbon price in as compelling a fashion as you’re likely to find. Manzi thinks about automobiles and gas taxes and pictures a certain kind of innovation — new cars with new engines that don’t run on gas. And when he looks at Europe he doesn’t see it. But does that mean that there has been no innovation in response to the higher gas tax rates? Clearly that’s not the case. In general, Europeans do drive different automobiles, which tend to be smaller and more efficient. Some of these have been innovative enough in their design to generate raised eyebrows from American tourists (see: the Smart car). In Europe, the scooter is far more popular and differentiated (the scooter with roof is a common sight). Bicycles are also more common and differentiated, and the institutional supports for cyclists are more highly developed (cycle superhighways are old news in Europe). (Via Brad DeLong)
And even cars that don't run on gas. When I was in Lisbon recently, I noticed an electric car plug-in station on Praça de Londres, a busy square in a mixed residential-commercial area. It turns out that Portugal, which has little domestic carbon-based energy, has been rapidly growing its electricity from renewables, and giving tax incentives for electric cars. Later in the visit, I noticed several electric cars driving around the city, which has also become much less congested in the last decade with improved public transportation, special bus and taxi lanes, and traffic-calming road redesign. Portugal does have a lot of potential for renewable power, but the big market signal from stiff gas and car purchase taxes is playing a major role in these changes.