Incentives Needed to Maintain Reduced Gas Consumption

There was an interesting editorial in yesterday's Washington Post, which was reprinted in the Statesman. Basically, the price of oil has fallen dramatically in the last few weeks and gas prices are coming down as a result. This is good new for the stock market and Hummer drivers, but it threatens to wipe out recent decreases in domestic consumption of gasoline (U.S. motorists to drove 12.2 billion fewer miles in June compared with a year earlier). The bottom line of the editorial is that higher gas prices result in lower consumption, so any national energy policy seriously aimed at reducing consumption should include an increased gas tax that would maintain the incentives to conserve gasoline.

Driving is cheap, easy and efficient for the person driving the car, but it imposes a lot of costs on everyone else. Traffic congestion is a $78 billion annual drain on the U.S. economy. Motor vehicle accidents are the leading cause of death among Americans aged 4 to 34. Construction and maintenance of roads and highways costs hundreds of billions of dollars a year. Energy imports are a major component of the U.S. trade deficit. Many of those energy imports come from countries that most Americans would rather not be financially supporting.

If the purpose of the increased gas tax would be to reduce these costs, not to raise revenue, then it should be offset by an energy tax credit (and should be much larger than the increase proposed by the Washington Post). If we assume that a person drives 10,000 miles per year in a car that gets 20 miles per gallon (hardly aspirational numbers), that makes 500 gallons of gas per year. This person would come out even if they got a $1,000 tax credit and the gas tax went up by $2 per gallon. People who drove more fuel efficient cars or drove less, or both, would come out ahead.