Saturday, April 26, 2008

Future of the suburbs.

A couple of months ago, on February 16th, I suggested moving to the city as a way to reduce one’s carbon footprint and cost of living. Clearly, we cannot all do that at once, but I suggested that it might be prudent to move sooner rather than later for purely economic reasons. Now it seems it might be too late. NPR and others reported recently that house prices in the suburbs have decreased considerably more than in city centers, where prices are actually still rising in some places. (See for this report and links to earlier related reports.)

It is interesting to me that this is all happening without any government action on climate change, just because of the price of gasoline. (Indeed, the cost of the externality of greenhouse gas emissions, and hence of any likely carbon tax or cap-and-trade system, is only a few cents per gallon, paling into insignificance compared to recent increases in gasoline prices.) With Saudi cancelling plans to expand its output, and Russia and Nigeria both announcing that their supply has peaked (at least in the short run) there seems every likelihood that the price of oil will continue to climb. Meanwhile, a recent study by Rice University indicated that gasoline prices are at a low point in comparison with crude oil prices, so I think we have seen the end of cheap gasoline until such time as we don’t need it any more.

I suspect that prices in the suburbs may never recover (in real terms) from their recent falls. An article in the Atlantic ( even suggests that today’s suburbs may become the slums of 2025, though that seems unlikely to me. If people are moving into the city because suburban life is unsustainable (read “too expensive”) it is hard to imagine that the poor will be able to afford the cost of heating/cooling large family houses or of commuting. I suppose single family houses might get divided into apartments and convenience stores, and maybe occupied by those who don’t need to commute because they don’t have jobs. I think it is more likely that they will continue to be occupied by the relatively well-off, but that the price of houses will decline further and further to compensate their occupants for the high costs of maintaining that life style. Or maybe we will all have hydrogen cars using hydrogen from clean sources, and the suburbs will come back.


Dan said...


Good points, although we propose a higher carbon tax than you assume in your note.

Dan Rosenblum - Co-Director - Carbon Tax Center

Tony Welsh said...

Thanks, Dan, for the comment. I went on your site and the only reference I found to a tax rate was in the CBO report which suggested $15 per metric ton. A metric ton is about 2200 pounds, whereas a gallon of gasoline produces abut 20 pounds of CO2. I make this about 14 cents per gallon.

Dan said...

Our basic proposal, described in a slide show which you can find on our page, is a ten cents a gallon increase each year for ten years. The idea is to phase in the tax so that individuals and businesses have time to adjust. Providing a clear price trajectory sends a powerful signal that it makes sense to invest in more efficient appliances, vehicles and manufacturing processes.

Our web site includes a description of a couple of alternatives and a discussion of the
of a revenue-neutral carbon tax.

Tony Welsh said...

Thanks for clarifying that, Dan.

I checked out the spreadsheet and if I am understanding it correctly it seems that you propose a 10 cent a year increment specific to gasoline in adition to a general carbon tax which also amounts to about 10 cents a gallon increment, so for the first year it will be roughly 20 cents a gallon and after 20 years it will be about $4. My guess is that in the short term oil prices will go up faster than your proposed tax; OPEC are predicting oil at $200 a barrel so I don't think $6 gasoline is too far away. But the predictability of an increasing tax is a definite plus. As for McCain and Clinton suggesting a tax holiday this summer, that is sheer pandering!

Dan said...

We only propose a $37 per ton of CO2 tax, increasing by that amount each year for ten years. That works out to a tax on gas of approximately 10 cents a gallon increasing by that amount each year for ten years. The additional 10 cents a gallon on gas, which you correctly noted in one of our spreadsheets, demonstrates the impact of the "hybrid" proposal floated by Congressman Dingell and subsequently withdrawn.

I agree completely with you that the McCain/Clinton gas tax holiday proposal is sheer pandering. It sends precisely the wrong message regarding the true cost of gasoline, undercuts efforts to put a price on carbon through either a carbon tax or cap-and-trade and if adopted it would increase the federal deficit.