CAFE vs Gas Tax

Brad Delong has the goods on Clive Crook's CAFE-bashing op-ed.

Clive Crook says:

A stronger CAFE is better than what we have now

A full-fledged gas tax would be better than a stronger CAFE

There is little chance of a full-fledged gas tax

I'm against a stronger CAFE

[M]ethinks Clive Crook is naive. If a high tax on gasoline had a snowball's chance in hell of passing, Dingell would be leading the opposition to it. He is only supporting it because he thinks if he holds it out there he can get some naive individuals like Clive Crook to oppose CAFE, which might pass.

The problem I have with a gas tax is that it's a difficult bugger to set. Two years ago, I'd probably have guessed that a dollar tax on gasoline would noticeably shift peoples' driving habits. But here we are, two years down the road, gas is about a dollar more expensive, and the amount of gasoline sold and burned in the United States has barely changed at all.

If you're lucky enough to hit that sweet spot, then yes, you will lower gasoline sales, and provide consumers with the incentive to buy more fuel efficient cars. If not, then you have to keep raising them. Or add higher CAFE standards on top of the tax, which begs the question of why the gas tax was preferable in the first place.

With the CAFE standard, the government can take information they already know about individual driving and car-buying habits, about the carbon intensity of gasoline, and about the percentage of total carbon emissions that can realistically come from cars, and determine a level of fuel efficiency that will (not just in theory but in fact) decrease auto emissions by the needed amounts.

Both CAFE standards and gas taxes will incentivize car companies to research cheaper, easier ways to make cars more efficient. But, to my eye, the gas tax can delay and obscure that incentive.

Comments

The problem I have with a gas tax is that it's a difficult bugger to set.

Yep. I noticed yesterday that regular gas is $2.95/gal here in stumptown. There are no mobs attacking the gas stations.

Jim Fallows hasn't revealed yet the contest winner on a 'better' metaphor than the frog in slowly warming water, so the old metaphor still has pole position. Gas prices have about doubled in recent years, and if that impacted demand, it isn't obvious. A nickle here, a nickle there, and pretty soon it adds up to real money. There is no absolute fixed tax add-on that is likely to work (that could actually produce results, because no politicians are that brave). Maybe a percentage tax might work - say add 50% more in tax above the non-tax retail cost per gallon.

A high gas tax is shock therapy (for a while, anyway) designed to produce immediate results. CAFE is designed to work as a conditioned response over time, and is not helpful in changing behavior in the short term. So, I'd shift to a percentage (rather than fixed dollar amount) tax increase now, with a ratchet in the percentage each year, accompanied by a dramatic goal of MPG using CAFE standards. Let those two forces find an equilibrim that results in declining gas use that makes a difference. BTW, I'd call the gas percentage tax the Automobile Infrastructure Fund, and dedicate its revenues to controlled-access highways, state and city roads, public urban transport, inter-city rail transport, and other direct transportation projects. PAYGO for transportation.

I'd retitle the CAFE thing as well to make clear that reducing oil imports from unstable regions is limiting our countries freedom to live without war and international oil cartels controlling our economy and foreign policy. One should note that as the dollar depreciates (because of our trade debt - which is very oil importation related) the cost of oil increases to keep the oil producers net income stable or increasing. Probably half or more of the increase in fuel costs over the last 3-5 years is a result of the fall of the dollar in international trade.

But those are just dreams politically, that have a third-rail impact so they are very unlikely. But, I'm arguing that gas taxes and fleet average MPG are both needed to prune our consumption and 'save the world'.

Posted by: JimPortlandOR on October 10, 2007 01:57 PM

Love it, Jim. Except for the part about naming the bill, which, as you know, I will take a principled exception to from this point forward. (Ok probably not)

Posted by: Brian on October 10, 2007 02:00 PM

ok on law naming. It used to be that laws were named after the principal co-sponsors of a bill. Hence, Taft-Hartley on labor law, McCain-Feingold on campaign expenditures, etc.

How about we name the combined Incremental Percentage Gas Tax and Higher Fleet Mileage bill: JimPortland-BrianBeutler Save the World Act?

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CAFE vs Gas Tax

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