The Harvard $7 Per Gallon Study: Missing the Point Completely

A new study by researchers at the Belfer Center for Science and International Affairs at Harvard University suggests that President Obama’s greenhouse gas (GHG) reduction goal will require gasoline prices of from $7.15 to $8.71 per gallon by 2030. This is not only untrue, but also represents a “roadmap” to economic and environmental folly.

The study begins with the assumption that the transportation sector would need to reduce its GHG emissions by the same 14% percentage as the overall goal for the economy, as proposed by President Obama (Note).

“Across the Board Reductions” are Absurd: The Harvard assumption is flawed from the start. GHG emissions reduction is not about “across the board” reductions of the same percentages applied to economic sectors. Such an approach could result in serious misallocation of resources, as opportunities for less expensive GHG emissions reductions in some sectors are ignored, while more expensive strategies are implemented in other sectors.

The Appropriate Price for GHG Reduction: The study itself assumes that the present GHG price is $30 and that the price will rise to $60 by 2030. Reports by the Intergovernmental Panel on Climate Change and McKinsey/The Conference Board say that sufficient GHG emission reductions can be achieved at below $50 per ton. It is fair to suggest, therefore, that any strategy costing more than the $50-$60 range must be rejected as being too expensive.

The Harvard study notes that GHG

…prices at their projected levels are far too small to create a significant incentive to drive less. Fuel prices above $8/gallon may be needed to significantly reduce U.S. GHG emissions and oil imports.

This should tell us something. Achieving the proposed reduction is GHG emissions from the transportation sector is just too expensive. If the current market price for GHG emissions cannot significantly reduce gasoline usage, then strategies that can be achieved for the market price should be implemented (in other sectors). Such an approach would by no means interfere with the potential to achieve GHG emissions reductions, rather it would facilitate less disruptive achievement.

$7 Per Gallon Gasoline: The Harvard study goes on to suggest that gasoline prices of $7.15 to $8.71 per gallon by 2030 might be necessary to achieve the overall GHG reduction goal in the transportation sector. These higher prices would be the result of significantly higher fuel taxes. The resulting cost of GHG emissions reductions could be more than $500 per ton (compared to the Department of Energy 2030 gasoline price projection). While the Harvard report “poo-poos” the economic impact of doubling gasoline prices, a Reason Foundation report (and previous research at the University of Paris by Remy Prud’homme and Chang Wong Lee) has found a strong relationship between mobility (driving more) and economic growth.

Focusing on Ends, Not Means: No one should believe it will be easy to achieve any eventual GHG emission objective. Success will be greatly enhanced by focusing on “ends” rather than “means.” This means employing the least costly and least disruptive strategies, without regard to how much we drive, where we live, how much power we consume or any other peripheral (and irrelevant) consideration.

At a price of $500 or more, the Harvard report’s price per ton could be nearly 10 times as much as the $60 GHG price assumed in the very same report. Such an increase in the price of gasoline would be both absurd and unnecessary.

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Note: There are multiple proposals for economy wide GHG emissions reductions. Congressional have been for 17% to 20% reductions by 2020.