Sunday, December 7, 2008

Gas Taxes, CAFE Standards, and Priuses (Prii?)

Gas is cheap right now. Now, that isn't to say that gas will be cheap IN THE FUTURE; in fact, I think the opposite is the case (more on that later). But, consumers have short attention spans and SUVs are starting to look more and more attractive, while hybrids... aren't. Already Prius sales are down 48.3% over last year, while the iconic SUV of the 1990s, the Ford Escape, saw its sales drop a mere -19.1%. The F-series of trucks are again the best selling nameplate in the United States. Toyota ended up selling more of their SUV RAV4s then Priuses.

My broader point here is: how are we going to tell General Motors and Ford to "green" their operations when the market is desperately telling them to go in the opposite direction. Gas-guzzling models are their strong suits (they dominate the market), while small cars are weak for them (Ford has only one car on the top-sellers list, Chevrolet has only one as well, and Chrystler has ZERO). Why would then voluntarily move from a strong niche in their industry to something that they are bad at?

The answer there is that regulations will force them, but regulations cannot solve all of these problems. If gas is cheap, consumers will find a way to buy cars like Hummers, just like fuel economy regulations didn't stop the production of these cars in the 1990s. There are a number of loopholes in the current law; GM and Ford could just use the ethanol credit (which gives a boost in fuel economy numbers for ethanol-enabled vehicles, despite the number of problems with ethanol) to artifically meet the standards without actually improving fuel economy.

My position is that there is a better way to incentive fuel economy, reducing driving (which decreases congestion AND reduces gasoline consumption at the same time), speeds up the development of alternative fuels, and encourages people to take public transit at the same time. And that policy, my friends, is not fuel economy standards; the answer is high gasoline taxes. After all, Europe's high gas prices probably do more to encourage efficient cars than our regulations have.

So, what's the flaw in my argument?


Jonna (aka Gaia) said...

Nice looking blog Kyle!

I agree with the value of a gas tax as a vehicle (no pun intended) for alternative energy incentives. However, it's a political quagmire that even our beloved President-elect can't finesse his way out of. In a long interview yesterday on Meet the Press, Tom Brokaw asked Obama if the quickest way out of our current pickle, given the low price of oil right now, wasn't to add a tax that would bring gas back up to around $4/gallon. Obama really had no choice in his answer, I could see it a mile away.....well...yes, but you see I campaigned on a promise to help the middle class and they are dying right now - losing their homes, their jobs, etc, etc. We can't threaten their livlihoods with high gas prices just now....On one hand, this seems to be a cop-out, but there is something embedded in the answer that rings true. Your parents, myself, most of the CPS community, can afford gas at $4/gallon. We might alter our driving patterns a bit, or not. But the truth is, we are affluent. Even me, who can't afford to buy a house, or even to buy a Prius, is better off than the vast majority of families out there. For many, it's not a matter of choosing some inconveniences, it really is a matter of getting to work or feeding your kids healthy food. A gas tax would differentially impact the poor, there's no way around it.
So, I don't see it getting off the ground, and in truth, I don't think it's the best solution. As I've said before (and reference the article I just posted on the APES blog, this economic crisis has brought the Detroit automakers to their knees, just where we want 'em, and if Congress can be smart about this, we can get an awful lot out of them.

And, as you indicated in the beginning of your post, this drop in gas prices is just a false lull. OPEC is meeting this week to cut production, and we can expect gas prices to start climbing any time now. HOORAY!

A Little Stone said...

Though the gas tax, on the surface, seems to impact the lower and middle classes. I take Kyle's point. The gas tax could act as an incentive for the car companies to start coming out with more fuel efficient models. If we were to pair the gas tax with some form of subsidies for fuel efficient vehicles and hybrids--an all out effort to change our driving patterns, than we might see a real shift.

The big three have models of cars that they sell in Europe that get over 40 mpg like the only two super-efficient models currently available in the US (the prius and the civic hybrid). If push came to shove, than the big three have the machinery in place figuratively if not literally to switch.

There are still a couple of major roadblocks to the development of cleaner cars for the US. First, many European cars run on diesel engines that don't meet US emission standards, so a cleaner diesel technology would have to be developed in order to comply with US regulations. Also, Unions fight the increase in fuel economy standards because it might involve importing European models for awhile, and they're worried about getting laid off.

A gas tax would, as Jonna says, be incredibly hard to get through Congress in an economic recession like today's but once and if it got passed it might be a more watertight way of controlling emissions than cap-and-trade because it would avoid many of the loopholes that would be easy to exploit in the cap-and-trade system like valueless offsets.

I'm for a gas tax, but I don't see it getting through Congress any time soon. Cap-and-trade might be somewhat more palatable (though there will be plenty of opposition), and I think that we need to have some political savvy.

K_Weber (Goat) said...

Adam: I should have clarified that I meant that the Big Three had no highly fuel-efficient models in the United States. In fact, Ford makes the least polluting vehicle (looking at greenhouse gas emissions) sold in the United Kingdom.

One thing which I have often wondered is if both Europe and the United States would benefit by "rationalizing" their safety standards, making both sets of standards equivalent. Currently, differences in safety regulations make importing cars very expensive, but by harmonizing as many of these regulations as possible, cars could be cheap, fuel-efficient, and still meet safety standards.

I wouldn't subsidize hybrids though, because I think the "infant industry argument" (which I presume you are using) holds less true after one million vehicles. Personally, I think it would be fair to subsidize the first X electric vehicles in order to try to encourage economies of scale.

And again, the "don't raise taxes in a recession" assumes I'm talking about instituting these taxes instantly. They could easily be phased in so that people could prepare and so there wouldn't be a shock to most people's system.