Can We Get Ourselves Off Gas?

by: Ryan Avent

Ezra highlights some nice new language from the president, who may be considering a new push for climate legislation in the wake of the BP oil spill:

The only way the transition to clean energy will ultimately succeed is if the private sector is fully invested in this future — if capital comes off the sidelines and the ingenuity of our entrepreneurs is unleashed. And the only way to do that is by finally putting a price on carbon pollution.

Hey, I agree with that. I think a carbon price is a crucial part of the policy portfolio needed to address climate change. The problem is that it will have almost no effect on gasoline consumption, at least in the short term.

Any politically feasible carbon price would add no more than 10 to 20 cents to the price of a gallon of gas. That’s about as much as the change in the average price of a gallon of gas from the beginning of May of this year to the end. And that’s not nothing; presumably some people curtailed their driving in some way as a result of that swing. But in terms of getting the US off oil, it’s not going to do the job.

So what if you did want to significantly reduce American oil consumption? Well, you’d want to increase the price of gas by more than 10 cents per gallon, a shift likely to be lost amid normal market swings. If you want people to invest in new technologies, like more efficient vehicles, to reduce their consumption, you need to send them a powerful price signal. And then you might also want to make it easier for Americans to change their behavior, by investing in alternative infrastructure. But for that you’d need money. Sadly, the nation’s transportation coffers are going dry, primarily because the real value of the gasoline tax has been declining steadily since 1993.

Oh wait, you could increase the gas tax. America’s gas tax is embarrassingly low among developed nations, and it hasn’t been increased since 1993. A carbon tax is the most direct way to reduce economy-wide emissions of carbon, but a gas tax is the most direct way to reduce the consumption of gas — and all the annoyances that go along with oil-dependence. The price of gas is probably going to be going up a lot anyway, thanks to market pressures, but if the gas tax is raised then some of the increase cost can be directed to the government’s coffers. Otherwise, the whole of the increase will accrue to oil producers. And an increase in the gas tax, combined with indexing of the tax to inflation, would ensure a nice flow of revenue that could be used to keep roads in good repair and to invest in rail, transit, buses and other infrastructure to facilitate reductions in oil use.

The rub is that everyone is convinced that Americans would storm Washington and burn down the Capitol if Congress so much as thought about discussing whether it might consider proposing an investigation into whether a gas tax increase would be a good idea. Maybe! Americans do hate higher gas prices. But they’re also increasingly used to them. And they hate oil companies and oil spills and the dastardly foreign companies who sell us oil, and so on.

Honestly, I’ve just about given up on the idea that an increase in the gas tax is possible. The Gulf of Mexico is filling up with oil, and no one in Washington is even mumbling under his or her breath that maybe now is a good time to think about an increase. But this is the easy answer — policy-wise if not politically. You tax gas, you reduce consumption, and you raise the money to once-again provide the country with a first-class transportation system.