if $4 per gallon is the magic number, how do we keep it there?

A few weeks ago, during a speaking engagement in Ann Arbor, respected auto industry analyst David Cole noted that, if the price of gas were to fall dramatically, all the progress recently made in the area of alternative fuel vehicles would be for naught. His experience, he made clear, had shown him that not even the most promising projects and the best of intentions could compete with cheap oil. However persuasive the scientific evidence of global warming, or believable the projections showing that the Earth’s supply of oil is running out, in his opinion, it wouldn’t matter. Cheap oil won out in the 70’s, and it would win out again. And, for this reason, he suggested that we consider setting a floor on gasoline prices – an amount below which gas could not be sold.

Today, as I noticed gas prices in Michigan had dropped to an average of $2.07 per gallon, or approximately half of what they had been earlier in the summer, it made me wonder how we can possibly keep the momentum going in the direction of plug-in hybrids and other non-petroleum-driven forms of transportation.

It seems to me that $4 per gallon is the magic number. When we hit $4 – that’s when people started talking seriously about alternatives. That, in my opinion, is where we need to stay. And I think our leaders know it. The question is, does anyone have the political will to push for it in an economic environment such as this one?

If not a setting a floor on gasoline prices, how about imposing an additional tax whose proceeds would go toward building alternative energy infrastructure?

At some point in late 2006, I got inspired to do the impossible and help popularize the idea of a more significant tax on gas. I was eventually sidetracked, but here are my first thoughts in all their na

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  1. Posted November 11, 2008 at 8:47 am | Permalink

    Perhaps a reverse-graduated gas tax; the first dollar is taxed at 25%, the second dollar is taxed at 20%, the third dollar at 15%, the fourth dollar at 10%, the fifth dollar at 5%. Then pre-tax $2/gal is taxed at $0.45/gal, or 22.5%. Pre-tax $4/gal is taxed at $0.70/gal, or 17.5%. The higher the base price is, the lower the effective tax rate is, and the percentages could be made steeper for a sharper effect; for example: 55%, 35%, 20%, 5%, 0%. At those percentages, $2/gal is taxed at $.90, or 45%. $4/gal is taxed at $1.15, or 29%.

    If a high gas tax is ever implemented, it should be coupled with significant investements in mass transit. I would personally support gradually increasing the gas tax to at least 100%, if ALL the new tax revenue went toward mass transit. The state-directed and/or funded research you propose would be unnecessary; a doubling of gas prices would create a huge market demand for increased fuel effiency vehicles. It would also increase the demand for mass transit, so some projects that seem like a waste today would make sense.

  2. Meta
    Posted November 11, 2008 at 8:50 am | Permalink

    Headline int today’s Financial Times:

    “Oil price fall checks enthusiasm for alternatives”


  3. Brackache
    Posted November 11, 2008 at 11:31 am | Permalink

    Price controls are a good idea now? Holy shit, thank you for reminding me why I’m not a Democrat.

    This is going to be another LONG centrally planned depression.

  4. GG
    Posted November 11, 2008 at 2:19 pm | Permalink

    For what it’s worth William Clay Ford is a proponent of a $.50/gallon gas tax.


    William Clay Ford Jr., chairman, CEO Ford Motor Co- “We know that the days of unlimited, inexpensive gasoline are over.”

  5. Posted November 11, 2008 at 3:50 pm | Permalink

    Gas tax, OK, but wishing that gas was four bucks a gallon, I don’t know. That’s awfully hard on a lot of people that I know. It seemed like the gas hike was what triggered the whole recession.

  6. Brackache
    Posted November 11, 2008 at 5:46 pm | Permalink

    As many variables go into the price of commodoties as there are people who buy them; so much so that really rich, politically connected, stockmarket playing people sometimes lose a lot of money failing to accurately predict what the prices will do. When people try to manipulate the market, they eventually get unforseen bad results due to the incalculable number of variables (combined with their own fallible natures). That is, in a nutshell, why central economic planning is doomed to failure. Nobody’s that smart, even if they could exercise that much control… control which, of course, is immoral and oppressive in and of itself.

    This comment brought to you by Eor’s Evergreen Christmastree Farm: “Eor’s Evergreen Christmastrees — the only trees too stupid to realize that winter totally sucks ass.”

  7. Posted November 11, 2008 at 9:42 pm | Permalink

    As I think I said at the time you first proposed it, I wholly agree, but would want the proceeds to be used to ensure that people have access to the things they need.

    Using a new gas tax to provide alt-energy infrastructure for brand-new whiz-bang high-tech energy efficient cars is fine for those of us who are middle class enough to ever think about buying a new car.

    As much as I disagree with Brackache’s blind opposition to your idea (I suppose a control-less Mad Maxian “free” market has a lot of appeal to the people with the guns to steal the gas they need…), I think part of my own priorities would sound a little like his: we need to (re)consider the regulations that cause our communities to sprawl. Transportation is no basic need, but a mere side effect of getting where we need to go. If we didn’t have quite so many rules (homestead tax credits, exclusive single-family zoning) pushing us further from the places we need to go, we wouldn’t be so susceptible to transportation costs. In the long run, we’re going to need to remove these regulatory obstacles that impede our adapting (individually or as a community) to challenges such as energy price shocks.

  8. Brackache
    Posted November 11, 2008 at 10:27 pm | Permalink

    While I do bear a striking resemblance to Lord Humongus, I wouldn’t call it blind opposition. Not like Bernanke (douchebag though he is) himself agrees that price controls unnecessarily lengthened the Great Depression. And commonly accepted histories agree that FDR’s New Deal programs didn’t help (and some say, deepened) the Great Depression. Nope. Blind opposition because Libertarians are all crazy nazi gun nuts who want to aggressively pillage everyone. Because a few people controlling everyone = good order and freedom = evil chaos. False, cartoonishly characaturized choices are the height of rational thinking, and I salute you.

    (yes, I realize that the price controls in the Great Depression are in a different vein than those mark’s suggesting. It’s the general foolishness of economic interventionism I’m arguing against… though those are good specifics)

    Just walk away, and I’ll spare your lives. K-chunk, k-chunk, k-chunk.

  9. nammeroo
    Posted November 11, 2008 at 11:28 pm | Permalink

    Murph: “If we didn’t have quite so many rules (homestead tax credits, exclusive single-family zoning) pushing us further from the places we need to go, we wouldn’t be so susceptible to transportation costs. In the long run, we’re going to need to remove these regulatory obstacles that impede our adapting (individually or as a community) to challenges such as energy price shocks.”

    This from the guy sitting in the office from which the scheme to downzone parts of the Midtown neighborhood to single-family residential came forth. This from the staff planner to the group that rejected the Midtown neighborhood’s recommendations to promote more owner-occupied rental housing and allow accessory apartments in some city neighborhoods. This from a representative of a city government that has created a Byzantine maze of housing and zoning regulations worthy of a community 20 times its size!

    All right Murph, I realize that you weren’t in the chair when most of this was done. Nonetheless, I say unto you O Planner: Clean up thy House before thou casteth aspersions upon thy Neighbor’s House. FYI – there are those that like single-family zoning, including several on your City Council.

  10. mark
    Posted November 11, 2008 at 11:46 pm | Permalink

    Thank you all for your comments.

    You raise good points.

    I don’t know what the answer is, but it seems to me that if we don’t do something now that gas is dipping under $2 a gallon, that we’re going to set ourselves back several more years.

    We know that the oil is running out, and we know, by spending money on it, we’re putting money in the hands of those that would like to do us harm. It shouldn’t matter what the price per gallon is. We should shut off the spigot and figure something else out. But oil’s seductive. It’s terrific fuel. And it’s cheap. So hard to say no to…

    That’s why we need a leader who can lay it all out and build consensus.

    And, yes, I agree that whatever we do it can’t disproportionately hurt the poor. Public transportation needs to be a component…

    I’m rambling.

    I do thank you for joining me in this conversation with me. I think it’s one we need to be having on a national level, but I don’t see anyone talking about it. (If you know of any national groups calling for an immediate gas tax, let me know. I’d love to talk with them.)

  11. Posted November 12, 2008 at 8:47 am | Permalink

    @Murph: While the regulatory obstacles you mention are certainly issues, the larger problem is the personal economics of the issue. At $2/gallon or $3/gallon, it makes sense for me to commute from Ypsilanti to Southfield. At higher gas prices, it makes sense to take a pay cut to work closer to home. Zoning changes might cut a 3 mile commute to 1/2 mile but won’t make a difference in a 30 mile commute.

    A gas tax makes a job closer to home (or a home closer to work) more desirable, and would help create popular support to change some of those regulatory issues.

    @Brackache: Centralized planning may not work, but using taxes or tax breaks as an incentive or disincentive definitely does. Look at what’s happened on a state to state level with cigarette smoking, for example.

    @Cousin Geoff: That’s exactly why I suggested that most or all of any gas tax should go to support mass transit, to create a viable alternative to driving.

  12. kjc
    Posted November 12, 2008 at 10:50 am | Permalink

    We have centralized planning. It’s called market fundamentalism.

  13. kjc
    Posted November 12, 2008 at 10:53 am | Permalink

    “And commonly accepted histories agree that FDR’s New Deal programs didn’t help (and some say, deepened) the Great Depression.”

    Can you name these “commonly accepted histories”? I’d like to check them out.

  14. Jean
    Posted November 12, 2008 at 1:46 pm | Permalink

    No price controls necessary. We hit peak oil a few decades ago while steadily increasing consumption so that they are neck and neck. In other words, enjoy your cheap gas while it lasts; don’t wait until summer for that road trip. If consumption returns to old levels as the economy recovers (?!), I’ve heard predictions of $10 a gallon. This info courtesy of the oil companies.

    Quoting the NYTimes 10/30/2008:
    Readily available credit and high oil prices were a boon for clean energy businesses. Fortune smiled on technologies like wind and solar when money was cheap, and when the gap in price between traditional fuels and low-carbon alternatives was narrow enough to make the alternatives look profitable.

    But credit markets have seized up and the price of a barrel of oil has fallen nearly 60 percent since hitting record highs this summer. The picture now is much bleaker for clean energy, and concern is widespread among business leaders who are facing diminishing demand for environmentally friendly hardware and services.

    That should make one of the chief messages to emerge from the annual Oil & Money Conference in London this week – high-cost oil is here to stay – a source of optimism for the clean energy sector.

    Despite the sharp dip in the price of a barrel in recent months, “the low energy price age is over,” said Nobuo Tanaka, the executive director of the International Energy Agency. He said demand was likely to remain steady from parts of the world like China and India, and that supply may not catch up with demand once any recession had run its course.

    Low oil prices could mean less investment in infrastructure, undermining future oil production.

    That message was reinforced by Robert Dudley, the chief executive of oil company TNK-BP, who said production from Russia, the largest producer outside the Organization of the Petroleum Exporting Countries, probably had peaked and may be headed into decline.

    In fact, projects to develop renewable energies may make more sense than ever before, suggested Christophe de Margerie, the chief executive of French oil company Total.

    Mr. de Margerie said that when oil prices bounce back, they could reach unprecedented levels, making it wise for investors to keep investing in alternatives.

    “Do we stop being clean because of this crisis?” asked Mr. de Margerie. Prices for oil could climb “to the sky,” he warned, and waiting to invest in low-carbon energy projects could triple their cost.

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