The carbon tax on motor fuels is often presented as the best policy tool to curb the contribution of automobile use to climate change. Since this contribution is by and large proportional to fuel consumption, the reasoning goes, the carbon tax on motor fuels will induce car users to travel less and to choose more fuel efficient cars. In turn this will drive car manufacturers to propose cars with better fuel efficiency or cars using alternative energy sources. In Europe, where motor fuels are already heavily taxed, this vision is mistaken. Whether the total revenue from motor fuel taxation covers the total external cost of automobile use is still debatable. What is clear, however, is that fuel taxation is much too blunt a tool to ensure that the various external costs are charged at the right moment. As a result the marginal cost of greenhouse gas abatement is much higher in motor fuel consumption by automobiles than it is in the consumption of fossil fuels for other purposes such as industrial production or house heating. An estimate is made of these various abatement short and long term costs. The carbon tax on motor fuels presents two other shortcomings. At a reasonable rate (i.e. at the same rate for all fossil fuels and based on carbon content), it is much too weak a signal to induce noticeable behavioural changes before long. At a high enough rate to produce changes, it is a highly regressive tax. The authors document this for the UK and for France. They investigate the experiences with various policy tools in various countries to curb CO2 emissions from cars. From the Danish annual vehicle tax based on fuel efficiency to the American CAFE standards imposed on car manufacturers and to the Canadian Auto$mart awareness campaign, they have assessed the potential of the various alternatives to fuel taxation and proposed recommendations.
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