[Ed Miller]

[ QUOTE ]
In the case of hybrids, society is bearing the cost (i.e., by spending from the public fisc) to pay for the actions of the gas guzzler driver (who is a free-rider).

Net net, subsidy of hybrid purchases has less to do with making sure that cost-creators bear the external costs for their actions, and more to do with creating incentives through public spending to influence private behavior.

[/ QUOTE ]

I don't understand your point. It sounds like you are arguing that a $2,000 credit for hybrids is not internalizing, but a $2,000 tax reduction for everyone PLUS a $2,000 penalty for non-hybrids would be. That can't be what you are arguing because obviously they are the same.

I do agree that the present tax code is not designed to internalize automobile pollution. SUVs and trucks get a tax credit too.

Honestly, I think the tax code is so messed up that it needs to be redesigned from scratch. I think that each car should be assessed an "emissions per mile driven" number and be charged a per-mile levy to be assessed every time a car is registered. Just like you pay for power per KWh, I think you should have to pay per mile you drive a car (lower emissions paying less), above and beyond gas prices.

Obviously, there are lots of kinks to be worked out with that, not the least of which being that in our country, such a levy would be extremely regressive right now. It would have to be phased in, or a compensating credit would have to be put in and phased out.

But right now this externality essentially isn't being addressed, and it's not because it's an intractible problem. It's because many with money and power right now have a vested interest in ensuring air pollution remains an externality.