Did you decide to read this because of the title? No, that is not a typo. Gas prices have fallen tremendously compared to a year ago. Most of this is due to a stagnating economy. Lack of demand has cause a glut of unused oil, so the price falls. Hurray, right?
For everyone but the oil producers, yes. So, inevitably they will reduce output to raise the price again. Then, when the economy picks up and demand for oil increases, the price will skyrocket again.
Whats the solution? Encourage adoption of alternative fuels! If we stopped demanding so much oil for our cars, we would use less and the demand would stay down. And, when the price went up eventually, we wouldn’t be as hurt.
How do we encourage adoption? The problem is, when gas is cheap- people don’t care. Sales of SUVs and Trucks picked up and outsold cars again this past December as gas prices fell (and admittedly, also because of increased incentives/discounts by struggling automakers). People buy these cheap SUVs instead of the more expensive alternative vehicles- and the cycle continues. We have to break the cycle. It may be painful, but its for the greater good. Like medicine that tastes bad, it is better for us in the long term.
Thomas Friedman – acclaimed economist and author of “The World is Flat” agrees (NYTimes):
Which play? The one where gasoline prices go up, pressure rises for more fuel-efficient cars, then gasoline prices fall and the pressure for low-mileage vehicles vanishes, consumers stop buying those cars, the oil producers celebrate, we remain addicted to oil and prices gradually go up again, petro-dictators get rich, we lose. I’ve already seen this play three times in my life. Trust me: It always ends the same way — badly.
The way to do this is to artificially increase the cost of gas through a gas tax. Gas was around $4. Now it is about $1.70 nationally. Add a dollar to that price in taxes. Gas is still over 25% cheaper than a year ago. Use the tax revenue to 1) increase investment in alt. fuel infrastructure (service stations, charging stations, delivery options) and 2) Rebates for people who purchase alt. fueled vehicles.
These prices will encourage people to be mindful of the vehicles choices they make and encourage us getting off dependence on oil as fuel. Further, it helps reduce our contribution to pollution as a side benefit.
There has to be a system that permanently changes consumer demand, which would permanently change what Detroit makes, which would attract more investment in battery technology to make electric cars, which would hugely help the expansion of the wind and solar industries — where the biggest drawback is the lack of batteries to store electrons when the wind isn’t blowing or the sun isn’t shining. A higher gas tax would drive all these systemic benefits.
The same is true in geopolitics. A gas tax reduces gasoline demand and keeps dollars in America, dries up funding for terrorists and reduces the clout of Iran and Russia at a time when Obama will be looking for greater leverage against petro-dictatorships. It reduces our current account deficit, which strengthens the dollar. It reduces U.S. carbon emissions driving climate change, which means more global respect for America. And it increases the incentives for U.S. innovation on clean cars and clean-tech.
Are there downsides? Yes. In a time when the economy is already weak, and people are struggling to make their paycheck stretch, this would not help. But when prices shoot back up people will be hurting as well. Especially if OPEC cuts oil again and forces the price up prematurely before the economy recovers anyway.
Arguably, creating an artificially higher price ourselves might force OPEC to not raise prices themselves. They understand that the more alternatives there are, the less money they make. They don’t want us adopting new tech. They would lower the price to counter our tax in a hope to keep consumers on oil as fuel and not seek new options.
Does anyone see any other downsides? Anyone feel strongly that this is a bad move? Do you have a better plan to get off oil? Some kind of postive instead of negative incentive- perhaps via some sort of tax break? One of the things I will never understand is how the government gave small businesses tax breaks for purchasing Hummers, for almost the entire amount of the truck, instead of purchasing hybrids. And we wonder why they need a bailout, and why the government is giving it to them?