Tuesday, June 10, 2008

Locavores, Gas Tax Holiday

Stephen Dubner covers some reasons why people would prefer to eat locally raised food. The four he covers include that "it should be 1) more delicious; 2) more nutritious; 3) cheaper; and 4) better for the environment."

The first and third reasons are fully captured by the pricing mechanism. The argument can be made that the nutritional value may not be fully captured, in that people may not fully consider their future health when deciding what to eat today, or in that people do not consider the detriment their failing health may have to their community. Only in this latter argument would this qualify food-shoppers' negligence as an externality.

The fourth reason, environmental impact, obviously pertains to a community cost that is not captured in the pricing mechanism. Still though, buying local doesn't assure a reduction of energy use, as Dubner cites a recent CMU study indicating that it isn't always the case:
We find that although food is transported long distances in general (1640 km delivery and 6760 km life-cycle supply chain on average) the GHG [greenhouse gas] emissions associated with food are dominated by the production phase, contributing 83% of the average U.S. household’s 8.1 t CO2e/yr footprint for food consumption. Transportation as a whole represents only 11% of life-cycle GHG emissions, and final delivery from producer to retail contributes only 4%. Different food groups exhibit a large range in GHG-intensity; on average, red meat is around 150% more GHG-intensive than chicken or fish. Thus, we suggest that dietary shift can be a more effective means of lowering an average household’s food-related climate footprint than “buying local.” Shifting less than one day per week’s worth of calories from red meat and dairy products to chicken, fish, eggs, or a vegetable-based diet achieves more GHG reduction than buying all locally sourced food.

If a price were placed on carbon emmissions, it would raise the price of red meat and dairy, even if locally produced, in an accurate proportion to the community cost. Likewise, if distantly-produced fish truly has a lower environmental cost, it would be seen in the price paid at the store. People would accurately assess the cost and benefits of their locavore instinct.

It may even be that the increased cost of gasoline could effect the nutritional externality (if it is considered to be such). That is, foods that are less healthy tend to be processed more, requiring a greater amount of energy input. If the cost of the energy input reflected the community cost, processed foods would be more expensive at the store and a little less desirable.*

Of course, McCain is still pushing for the opposite, asking for a gas tax holiday, despite the fact that it received no support from any economist. Anywhere.

The political advantage to this is because of the presumption that since it is a tax on things people regularly buy, they will experience the benefit of the repealing of the tax. Since, at the moment, petroleum is in pretty fixed supply (whether you consider it to be because OPEC limits production or because the world production has actually peaked based on the supply in the ground), the high price of gasoline reflects the fact that more people on the planet are tending to want gas, and thus the price has had to rise to remove some of the people who, well, didn't want the gas as badly. $4 a gallon is the price (currently) at which you can find a buyer for every gallon of gas produced and no buyer gets turned away due to scarcity. If the current 18 cent tax is repealed, and the fuel supply stays the same, the price will stay roughly the same, and the oil companies will pocket the 18 cents (with perhaps an increasing fraction going to OPEC as well).

* - Another similar effect could be found by eliminating the corn subsidy, which is also incredibly difficult, politically, given that, since the subsidy is paid to farmers, people presume (similar to the gas tax) it benefits farmers, whereas it actually benefits consumers (though with distortionary effects regarding cheaper food loaded with high fructose corn syrup), and the companies that make corn-based foods (read: almost everything lately). If the subsidy were eliminated, the price paid for corn at a grain elevator would rise to make up most of the difference (since demand for food in general is pretty inelastic) with the rest of the difference going to other crops that aren't necessarily used to make corn-syrupy-foodstuffs (since demand for corn in particular is elastic in comparison).

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