Higher Fuel Taxes

Auto execs pushed for higher fuel taxes (and with good reason) at Reutuers Auto Summit in Detroit. Mike Jackson (AutoNation), Tim Leuliette (Dura Automotive) and Jerry York are on record as suggesting that a steady increase in the fuel taxes would reduce U.S. fuel consumption and provide the stability needed by the industry to plan for the longer term.

I totally agree.

[Source: Automotive News - requires subscription]

Raise the Fuel Tax Already!

Raising the fuel tax gradually and consistently would be so much more effective at curbing consumption and enhancing technical/economic stability than all these political "solutions" such as the CAFE standard. The CAFE standard doesn't even have to be rescinded, just not increased further.

The solution is really simple (though no politician is likely to have the courage or support to propose it). Take the national average gasoline price for the year to date. Make that the minimum gasoline price everywhere in the country.

Then add a modest (e.g. $0.05/gallon tax). Then every quarter going forward add another 0.5% to 1% to the tax, adjusted for inflation.

The price is never permitted to fall below the minimum (unless you want to see a run on gasoline). The same could be done for diesel. Use the tax revenue to fund roads, bridges, and ways to further reduce oil dependency.

This way the cost of gasoline will eventually outpace inflation but in a gradual way that companies and consumers can actually plan for, rather than the crapshoot of price speculation and wild swings.

Here are couple of food-for-thought articles:

China Raises Fuel Prices, Fuel Standards Are Killing GM

Minimum Fuel Price

There needs to be a minimum price on passenger car fuel with a modest quarterly escalation schedule and possibly a cap (lots of scope for unintentional consequences here), perhaps a cumulative 5 to 10 percent price increase per year phased in every
quarter to minimize disruptions due to step increases in price.

Here's why there should be a price "floor". It is the best way to reduce fuel consumption, bring some semblance of stability to the auto industry and the economy at large, and allow for greater innovation. Bill Ford and John McElroy (auto industry writer) are two supporters of such a policy.

Think about it. If auto manufacturers know for certain that fuel prices will be at least $x per gallon then they can plan for the longer term about what vehicles to develop instead of fretting excessively (and indecisively) on what product mix to
make.

The market will simply buy fewer vehicles with poor fuel economy as it does now, and shift to far more efficient alternatives which will be available because the manufacturers will have confidence that those vehicles will sell.

The market will also use those vehicles more judiciously. Regulating fuel economy (i.e. CAFE standards) misses the point and only addresses part of the issue. It doesn't address how cars are actually used: Miles driven, idling, lead-footed driving, etc. All that is dependent largely on fuel prices. When they are very high consumer behavior starts to change. They conserve more. Witness summer 2008.

That would drive down greenhouse gas emissions, reduce oil imports, help our trade deficit, and also reduce the flow of U.S. dollars to unfriendly countries.

The problem is no one can or is willing to do it politically. It would be unpopular - unless it was positioned not as a tax (stick) but as a benefit (carrot). The right course of action is often difficult.

We've all exercised our "rights" to cheap gas so much for so long we no longer have the freedom to enjoy it, thwarted at every turn by environmental, economic, and geopolitical costs. It's time to raise the price of fuel in line with these costs
so that we as a society have solid incentives to alter our wasteful behaviors.

Further, since government is notorious for wasting obscene amounts of money there need to be controls and restrictions in place to ensure funds raised from fuel taxes should only be used for infrastructure and transportation related initiatives.

These are admittedly very high hurdles but I believe that a Federally mandated minimum light vehicle fuel price program (not tax), properly administered, would be a huge boon to the auto industry and result in far better vehicle choices for
consumers.

Minimum Fuel Prices

One of the biggest threats to the development of alternative energy sources and technologies is the possibility of a collapse in oil prices. Such an occurrence would pull the rug out from under such initiatives because available investment will dry up if fuel prices become more competitive (i.e. lower).

It's happened before with the previous oil crises. But this time if we want to make lasting changes (for the better I might add) oil prices need to remain at least at their current levels high. One way to ensure that would be to have a minimum tax.

In other words, the price of oil should be handicapped to buy time for alternative energy technologies to emerge and replace those that depend on oil. John McElroy at Ward's Auto wrote a good article proposing that gas prices permanently remain at a minimum of $3.50 per gallon. It's a good read.

Vehicle Miles Traveled – The New Metric for Fees?

According to a recent article in Transport Topics (3/31/2008), Oregon has done a pilot study of nearly 300 motorists who volunteered to be guinea pigs. Their vehicles were fitted with a small GPS data recorder that tracked each.

Of course there are concerns from some about privacy and the “big brother” issue. While I agree that some of those concerns are valid, it really isn’t much different than the GPS features built into our cell phones now.

Anyway, the point of the study was to determine where, when, and how much motorists in the program drove. Instead of charging an 18.4 cent/gallon Federal fuel tax on gasoline as has been the case since 1993, officials are looking at taxes/tolls/fees based on each mile driven, and at what times (congestion pricing).

This is intended to ensure adequate continued highway funding as vehicles become more efficient and use less fuel,

I will point out though that a fuel tax on a per gallon basis will tax constituents on how much fuel they use rather than how much they drive. Right now if you drive a vehicle that gets low fuel economy, you get taxed more per mile than if you drive a more efficient vehicle.

With VMT-based taxes, unless there were provisions to account for your vehicles efficiency, you’ll be taxed on how much you travel. It would be better if drivers taxed on a basis that accounted for both the fuel used and the distance traveled in order to encourage less driving (especially during peak hours) and the use of more efficient vehicles.