A Modest Proposal to Improve the National Energy Policy
and Substantially Reduce Energy Waste and the Terrorist Threat
One of the major problems facing the United States today is the large
level of oil consumption, mostly in the form of gasoline for
automobiles. It has become a major cause of air pollution, it
uses up a limited resource, and it requires that we import a large
fraction of the oil we use. Imported oil increases the trade
deficit, increases our energy dependance on foreign countries, and
provides substantial revenue to countries with tyranical governments
and often supporting terrorist activities.
Trains, subways, and light rail systems are underdeveloped,
nonexistant or rarely used in most U.S. cities. And alternative
energy sources are either unavailable, too expensive, or horribly
So it's not the best situation.
What won't work
Many suggestions have been proposed; some have been implemented.
The better ones have been ineffective, and the others actually make
the problem worse. Some examples:
"Conservation" doesn't actually work. Sure, you get a
small group of people actually changing their lifestyles and
conserving, but they tend not to be the ones using a significant
quantity of the resource to begin with. The result is a
false sense of accomplishment, an enhanced sense of guilt, and no
Any solution needs to work at a deep practical level, and not be
a mere exercise in cheerleading.
"Car pool lanes" are an example of a plan with the best of
intentions going bad and, in practice, making the problem
worse. Car pool lanes waste a large amount of fuel by
crowding the traffic into the remaining lanes where it runs at less
efficient speeds (often standing still).
Of the drivers using the car pool lanes, it turns out that most of
them are meeting the legal passenger requirements without actually
car pooling. They are much more likely to be picking someone
up, going on a trip with companions, driving with children, or
are, for whatever specific reason, not actually sharing a ride
with someone who would otherwise be driving themselves.
So the wrong people are rewarded and original problem is made
worse. Note the implications here -- this is a fascinating
case of taking a very worthy initial goal, creating a
similar-looking secondary goal as a substitute, find a solution
for secondary goal, that solution turns out to have a negative
effect on the primary goal, and then declare the project a
Laws requiring a minimum gas mileage on cars sold have not helped
very much. The laws have loopholes, or end up being watered
The market has to work of its own forces, without forceful
Hating Sport Utility Vehicles does not work. Nobody is going
to pass a law prohibiting the sale of SUV's. And the recent
examples of vandalism directed toward SUV's by ecological
extremists only serve to inflate the egos of the vandals and waste
resources and energy repairing the vehicles.
The SUV hatred is fundamentally misdirected. Sure, SUV's are
less efficient and use more gasoline, but that's also true of long
trips, unnecessary trips, or extended commutes. (Ie., an
extended commute in a standard car will use far more fuel than an
SUV on a short trip.) In a significant number of cases SUV's
are the most appropriate form of transportation.
There are more examples; this is a highly abbreviated list.
Towards a solution
A solution must recognize the problem for what it is, address the
problem at fundamental scientific and economic levels, must not be
based on weird abstractions, must be workable and be fair.
First we need to recognize the simple truth that we, as a nation, use a
lot of gasoline because gasoline is really inexpensive.
Right now gasoline is around $2.20 a gallon in California where I
live, and about $2.00 in the rest of the country
[footnote]. Compare that
to the price of milk, beer, cola, coffee, tea, vodka, orange guice,
bottled water or just about anything else. Gasoline is mighty
inexpensive by any measure.
Sure, the prices of those items are not directly comparable because the
bulk delivery of gasoline is very different than the processing,
packaging, inspection and transportation of milk, beer, and so
forth. Granted. But the overall point still stands; if I
can easily get 25 miles of fine quality transportation out of a gallon
of gasoline that costs $2.00, there is going to be very little
incentive to use an alternative fuel that costs more, takes up more
space, is more difficult to carry, and limits my travel options.
The current price of gasoline at the pump leaves no financial
incentive to develop a car engine that runs on alternative
fuels. Imagine a wildly creative engineering breakthrough
resulting in a new engine that runs only Evian brand bottled water,
only to discover at the end that it's just not cost effective?
The effects of market forces
The fundamentals of free market economics tell us that the if the
price of gasoline is sufficiently low, then drivers will care less
about gas consumption, and we'll see fuel efficiency traded off for
other features or whims, we'll see less use of public transportation,
and longer commutes.
As the price of gasoline goes up, drivers become more concerned about
convserving fuel, alternative forms of transportation are more
attractve, and vehicles that are inefficient (SUV's etc.) will
If you see a lot of SUV's and Hummers on the road, it's a very good
indication that gasoline prices are too low. There would simply
be no demand for such vehicles if gasoline was more expensive.
The price of gasoline in other countries
I think it is important to compare the price of gasoline in the US
with the price in other countries. Here is some recent data:
This table is from
A glance at global gas prices, Paul Bannister, Bankrate.com
And it includes the following note:
Global gas prices as of June 1, 2004, were supplied by
Associates for International Research, Inc., a firm that
tracks the cost of living around the globe. Where
applicable, metric measurements were converted to U.S.
|Cost per gallon
This isn't perfect data; I don't have any reference material to back
it up, the Calgary number may be incorrect, it's not clear what causes
a city to be included in or excluded from this table, we don't know if
there are other economic factors that ought to be considered, it would
be good to have data for additional years to look for consistancy and
trends, and so forth. The reasoning behind these numbers would
also be fascinating to research.
But nonetheless, it is pretty clear that gasoline is comparatively
very inexpensive in the US.
I propose a change to the US federal tax structure where the price of
gasoline at the pump would be raised significantly by imposing a tax,
and at the same time, federal income taxes would be reduced in such a
way that the combined operation is roughly revenue neutral and that
the Average Joe effectively sees no net change. The pump price
of gasoline would rise to somewhere around $6.00 per gallon, triple
the current price.
Since gasoline consumption is roughly independent of income level, the
income tax reduction would very likely be in the form of a credit,
perhaps similar to the current Child Tax Credit. Alternatively,
it may be workable as an exemption, much like the exemptions for
The advantages of this proposal are numerous:
Drivers are rewarded three times as much as they currently are
for conserving fuel, either by using fuel efficient cars, or by
driving less, or by using a bicycle or motorcycle, or by taking
public transportation, or by living closer to their job for a
Inefficient vehicles will be signficantly more costly to
operate and will fall off in popularity.
Frivolous use of fuel will be significantly reduced.
The price of mass transit will become competitive. Trains,
subways and light rail will be developed and used more.
The price of alternate fuels will be more competitive, and
their applications will be developed.
Over time the topographic layout of cities and towns will
become oriented more toward mass transit, with businesses, homes,
and shopping located closer to train stations and trolley stops.
Car pooling will become more financially rewarding.
Highway use will decrease, relieving traffic congestion and
allowing the cars to run at more efficient speeds.
To help describe the proposal, let's try a hypothetical example.
Let's say that gasoline currently costs $2.00 per gallon, that the
average car gets 25 miles per gallon, and that the Average Joe drives
10,000 miles per year. Just to serve as an example.
In that situation, this Average Joe would spend $800.00 per year on
gasoline today. If he replaces his car with a hybrid vehicle
that gets 50 MPG, he would see a savings of $400.00 per year.
Alternatively he could enjoy similar savings by cutting his driving by
But if the price of gasoline at the pump was raised to $6.00 per
gallon through gasoline taxes, a year's driving of 10,000 miles at 25
mpg would cost $2400.00. At the same time there would be an
accompanying tax credit of $1600.00, so the Average Joe driving the
average car would see no net difference.
Now, if this fellow switches to a hybrid car with a fuel efficiency of
50 mpg, then that same 10,000 miles will cost $1200.00, and with the
accompanying tax credit of $1600.00, he will now be saving $1200.00 by
driving the fuel efficient vehicle, compared to the $400.00 savings
under the current system. And likewise if he keeps his old car
and finds a way to cut his driving by 50%.
This proposal effectively triples the financial incentive to use less
fuel, and triples the penalty for wasting fuel.
And here's a wild possiblity; anyone who just gets rid of their car
basically pockets a $1600.00 reward from the tax credit.
Are there downsides to this proposal? Are there situations where
folks will come out on the short end? Sure. Those who
don't pay taxes will obviously not reap the benefits of the lowered
Also, those who drive for a living. The plan as stated will
force a hardship on independant taxi drivers, truck drivers, delivery
services, traveling salesmen, and others in similar businesses.
Some of them will gravitate toward more efficient vehicles or
alternate fuels. The cost of most of those services would
increase, reflecting better their actual cost. Some of the
business will move to rail transport, beefing up the rail industry,
which would be a good thing.
(Since so much of the nation's economy is based on trucking, it may be
worth considering a specific tax break on gasoline purchased for a
trucking business, perhaps temporarily. This area certainly
deserves some research.)
Would raising the price of gasoline have a bad effect on the economy
in the short term? As with most anything, there will be good
effects and there will be bad effects. Some industries will be
negatively affected for sure. But others will thrive.
A gradual transistion
You wouldn't want to jump into this suddenly. It would need to
be phased in over, maybe, a 6 year period to allow drivers time to
understand the system and adapt. And time for the mass transit
infrastructure to respond to the new demand.
Subsidizing gasoline encourages and promotes its use and forgives its
waste. We really want the opposite of that.
Does the US subsidize gasoline? A paper published by the
International Center for Technology Assessment titled
"The Real Price of Gasoline"
claims that gasoline use is subsidized a tremendous amount, and that
Americans pay between $4.60 and $14.14 per gallon in external costs
not reflected in the price at the pump. The report is biased to
an insane degree in that any program that could remotely benefit
anything having to do with oil is included in the tally and blown up
way out of proportion. I think the report is more useful as a
starting point for a discussion of what sort of programs should be
considered subsidies and what should not.
So while the extent is debatable, the federal government does
subsidize the use of gasoline to some degree. And we have to
understand that if one wants to conserve the use of gasoline, a
subsidy is not how you do it. And it would be benificial to
remove some of the gasoline subsidies immediately.
A gasoline anti-subsidy, which my tax proposal pretty much is, is
required to move toward a better energy policy.
Import tariffs are usually levied by a country on for the purposes of
protecting industries, employment, to counter the practice of dumping,
or to retaliate against trade barriers imposed by other countries.
To complement my basic proposal, I think we need to impose tariffs on
oil and other products imported from countries that cause us harm, as
a disincentive for providing them with revenue that will be used for
terrorist purposes, and as a financial incentive for them to change
Robert Locke's article
"Rational Trade Vs. Free-Trade Extremism Part I: Security"
says it far better than I can.
A set of oil tariffs could easily shift oil imports from dangerous
countries to friendlier countries and to domestic sources. I
realize this is a diplomatically sensitive issue, but tariffs are much
less draconian than outright bans, and they can offer the potential of
This proposal is all about having the price of a fuel reflect its true
cost. I think this plan is practical, sensible, realistic and
has the best chance of directing the country toward a significantly
improved energy policy.
The gasoline prices quoted in the explanation and example were correct
when this article was started, roughly February 2005. As the
article is being finished gasoline prices have suddenly started
fluctuating wildly. I figure they will settle down again soon,
so I have not updated the prices in this article. Yet.
Now it's October 2005. I paid about $3.15 per gallon of gas this
week, up about 45% from when I started writing this article. One
of the reasons that gas prices are so high, besides the general
insanity in the mideast, is that the demand is high due of all the
oil China is using. China's use of oil has been rising very
rapidly in recent years, in parallel with China's growing
consumer products industries. Some huge fraction of the items
you buy in WalMart or Target are made in China, and very inexpensive.
So it appears that we're paying significantly more for gas now, but
getting the money back by being able to purchase inexpensive products
made in China. So, just like with my proposal, the costs roughly
cancel for the Average Joe. (Unless of course the Average Joe
makes consumer products for living.)