Gas Prices High. But Not High Enough.
Posted by: David Kiley on May 17, 2007
The average price of a gallon of gas is now above $3.00 per gallon. That’s affecting some car-buyers’ choices, as it has done in the past two years when gas prices spiked. But it’s still not high enough to spur the needed transformation of the U.S. auto fleet to much higher average fuel economy.
And that brings me to gasoline taxes, the one obvious measure that would move the U.S. to energy independence from OPEC and substantially limit the U.S.’s exposure to the political and ideological whims of the Middle East and Venezuela.
But don’t hold your breath. Republicans running for the White House are lining up to take pledges for no new taxes, no matter how badly they are needed. Connecticut is actually rolling back their state tax by five cents a gallon as a bone to throw to voters. Oh boy! Five cents. Ridiculous! Democrats are showing no more courage, though they are talking more about the need for greater fuel economy. Sen. Chris Dodd, a Democratic presidential hopeful, is pushing for carbon taxes on the automakers. But he has said in the last week that “direct” taxes on the consumer/voter isn’t [politically] feasible. So much for Profiles in Courage.
Conversations I have had with Congressional staffers and one prominent Democratic Congressman tell me that polling data going back to the 1980s shows that there would not be a tax more unpopular with voters than a gas tax.
Europe has an average fuel economy for its new-cara fleet of more than 40 mpg. The European Union years ago amassed support among members for high taxes on gasoline that drove a swift migration from big cars to smaller cars and to diesel fuel. The result—less dependency on Opec and cleaner air in the cities.
A Congressional staffer told me in order to get a gas tax across to the American voter, it would require that the President drive a bi-partisan effort that results in the Democratic and Republican leadership of Congress standing behind him as he addressed the country in a series of speeches explaining the need for a gasoline tax, and that both parties would have to sign an agreement that neither side would use the gas tax against the other party in ads or rhetoric.
How likely does such a photo opp. appear?
The rhetoric today is about hydrogen by 2030, ethanol and bio-fuel, carbon taxes and such. It’s all about everything that puts higher fuel economy off for perhaps two decades. But we know that if we slap a gas tax today of, say, $1.00-$1.50 per gallon, on today’s gasoline, legislate a price floor on oil of, say, $50 per barrel, to keep gasoline above $4.00 per gallon, there will be mass trading of SUVs and pickups for smaller, more fuel efficient vehicles. And there will be a rapid flight of popularity for vehicles that run on clean diesel fuel.
Auto companies would like to see this gas tax strategy adopted. Most environmentalists support the gas tax too. It’s a proven way to achieve a rapid rise in fuel economy. Automakers just want some predictability in the marketplace, like they got in Europe, so they know what vehicles to make for American tastes and demands. In short, they build big SUVs and high-horsepower vehicles because that’s what the public wants when gas prices are low.
Gasoline prices have surged more than 20 cents in recent weeks to a record nationwide average of $3.10 per gallon, surpassing the previous record of $3.07 per gallon set in September 2005, according to the U.S. Energy Information Administration. As gas prices rise, owner loyalty in the large pickup and midsize and large utility vehicle segments drops, according to data gathered by Power Informtion Network between February and April 2007. Owner loyalty is measured by the percent of owners in any given segment who trade for another vehicle in the same segment.
“We’re seeing a broad, long-term—but gradual—movement to smaller vehicles,” says Tom Libby, senior director of industry analysis at PIN. “For example, during periods of high gas prices over the past two years, we’ve seen movement from larger to smaller SUVs. However, the total SUV pie remains largely intact.”
Additionally, sales of small vehicles, including cars and light trucks, as a percentage of total new-vehicle retail sales, have risen from 26.3 percent in the first quarter of 2004 to 31.8 percent in the first quarter of 2007.
That’s a start. But consumers won’t trade their Ford Expeditions, Toyota Sequoias and Chevy Tahoes that they don’t need until gasoline is permanently over $4.00 per gallon. The people who really need those vehicles for ranching and boat towing will buy them no matter what.
The new tax money can go to tax offsets for low and lower-middle class consumers and to invest in new energy infrastructure in the U.S.
That makes sense. This is not an original idea, but the gas tax could be called a “patriot tax” to exempt it from political wrangling.
But what candidate will approve that message.
