This strikes me as, at best, a word game. I understand that innovation is not identical to invention. But this is like saying that in response to an increase in the price of peanut butter, I â€œinnovatedâ€ by making smaller sandwiches and eating ham-and-cheese more often (while noting that I designed these new sandwiches very well, and am probably healthier anyway with less peanut butter in my diet). If by â€œinnovationâ€ in response to higher gas prices, we mean switching to smaller cars and taking the bus and riding bicycles more often, then I agree entirely that higher gas prices in the U.S. will induce innovation.
The point is not that Europeans have responded to higher gas tax rates by using substitutes. The point is that the quality of substitutes has improved considerably over time — indeed, faster than improvements in the same substitutes here in America. If it’s relatively cheap and easy to respond to higher gas prices by using and improving alternatives, then why go the hard way and spend billions trying to invent some magic new zero emission engine? And to reiterate, this is why carbon pricing is important: because it will provide us with lots of evidence screaming that we shouldn’t spend billions trying to invent some magic new zero emission engine, because it’s a waste of money and there are better alternatives available.