Could America Tax Gasoline More (And Fund Clean Tech)?


Last month Thomas L. Friedman wrote in the New York Times an interesting op ed on why America should tax more gasoline. This occurs as the United States is the least forceful OECD country regarding gas tax. US drivers pay on average less than ten euro cents of tax per litre when their German, British, Italian, Turkish or French counterparts pay as much as 60 to 70 cents per litre. Even Australia does better with more than 20 cents per litre.

The situation varies from State to State with Alaska only taxing 26.4 cents per gallon of gasoline while California taxing up to 63.9 cents per gallon. Federal authorities already tax 18.4 cents per gallon for gasoline and 24.4 cents for diesel.

Since the United States’ addiction to oil is widely documented and recognized as a threat by both sides of the political spectrum, why shouldn’t it tax oil more to curb the consumption?

This could effectively stimulate efficiency, decrease the amount of oil the country consumes each day and also help to curb greenhouse gas emissions. One dollar per gallon would bring $140 billion to the Federal government each year. One dollar per gallon would amount to 39 euro cents per litre. Even with such a tax, the United States would keep on taxing less heavily gas than most OECD countries.

As Friedman notes in his article :

Such a tax would make our economy healthier by reducing the deficit, by stimulating the renewable energy industry, by strengthening the dollar through shrinking oil imports and by helping to shift the burden of health care away from business to government so our companies can compete better globally.

Such a tax would make our population healthier by expanding health care and reducing emissions. Such a tax would make our national-security healthier by shrinking our dependence on oil from countries that have drawn a bull’s-eye on our backs and by increasing our leverage over petro-dictators, like those in Iran, Russia and Venezuela, through shrinking their oil incomes.

Instead of spending the money on national debt or healthcare, my belief is that the US should spend it on advancing and advocating cleantech, cutting its fossil fuels consumption and stopping to rely so massively on oil imports. It would also prepare itself for higher oil prices and peak oil.

Here are some projects that could benefit from such a tax and decrease oil consumption and exports:

  • electric cars research, promotion and incentivesenergy efficiency and smart grid

  • road infrastructure

  • renewables (research, promotion and incentives)

  • nuclear

  • high speed rail and mass transit

  • any project unrelated to energy

With 15 cents per gallon  each project would bring around $9 billion per year. No doubt that with all this money many things could be achieved.

To exemplify, here are some calculations using the figures given in Sustainable energy – without the hot air:

With $90 billion collected during a decade America could build approximately 45 GW of nuclear capacity or 70 GW of offshore wind.

As for high speed rail, this sum would multiply by ten the amount already allocated by President Obama. With all this money the country could get its ten high speed rail corridors and could even go way beyond.

Of course, if one dollar per gallon was too much, America could enact a fifty cents tax. The duration of the projects would however double.

China recently unveiled massive projects for high speed rail, nuclear power and hydroelectricity. Even if the Chinese government is not all too ready to cut its emissions, it is fully aware how relying on dirty coal and foreign oil could slow down the country’s rapid economic growth. Could the US just do the same ?

[photo credit: Flickr]



Have any Question or Comment?

8 comments on “Could America Tax Gasoline More (And Fund Clean Tech)?

Steve

Unfortunately a gas tax would put an unfair burden on people who cannot afford to buy a new cars. I am for a gas tax in the long run, but for the short term I think policy should get the new car buyers to purchase more fuel efficient cars. Imagine if the gas tax was paid up front based on estimated fuel efficiency. For example a 50 cent per gallon tax for the first 100,000 miles. A 20mpg car would pay $2500 and the same car as a hybrid at 30mpg would only pay $1667. That $833 difference would help cover the increase in the base cost for the hybrid technology. 14 million cars were sold in 2008 with a fleet average of 27mpg. That would be approximately $26 billion.

Thanks Steve for your comment and your interesting idea !

In my bullet point “electric cars” I noted down incentives. These incentives would help less affluent people switch to electric cars when they will be available. (2010 is I think going to be a great year for that technology).

Batteries are a problem as they are due to be very expensive but I guess leasing them on a monthly basis would enable to solve the problem (after all, you don’t buy all the oil you are going to burn when you buy a car)

As you write the mileage in America is awfully low. Current cars in Europe already get 40 to 60 MPG. The US action on that matter was a good step but way too little, but I digress…

@ Steve –

incentives have to be financed. I’d much rather see an extra $0.015 of tax on every gallon of gasoline and on-road diesel each and every month for the next 20 years. At the end of the first year, the surtax would be $0.18 per gallon. After five years, it would be $0.90. After 20, it would come to $3.60. Ka-ching, but still less than folks in Europe are already paying in fuel taxes today.

Even accounting for inflation, the additional would be very substantial. The concept of the highway fund would disappear, instead all fuel tax revenue would go into the general fund. That would also be tapped to pay for capital investments in roads and other forms of infrastructure, e.g. passenger rail. That is fair in that motorists benefit when others choose not to clog the roads with cars of their own.

Ramping up has several advantages. First, consumers, businesses and urban development/transportation planners all need both pressure and lead time to prioritize fuel economy over other investments. Second, that pressure has to ramp up in a predictable and reliable way to justify making those investments.

Third, other taxes need to be cut to mitigate the impact on the poor. The general sales tax would be the best option, but that is collected at the state level. Therefore, it may make sense to let individual states “opt out” of a federal surtax on gasoline and on-road diesel if actually collect one of the same or greater magnitude themselves. If they do, there would of course also be consequences for federal capital spending on transportation infrastructure in that state.

Steve

Sorry, not sure what you mean by “incentives have to be financed.” An up-front tax could be structured to match any at the pump tax. My belief is that it would require much less up-front than at the pump for the same effect.

The average life of a car is 12 years and climbing. Cars purchased today will still be on the road in 2021. The person that is buying a 5 to 10 year old car is stuck with the ones that were built at a time when gas prices or gas taxes could be wildly different. You could argue that as the price of gas rises the fuel inefficient cars get scrapped sooner. That just means that there are fewer used cars and higher prices. Any way you cut it the poor suffer disproportionately.

I have no problems with ramping up a gas tax, but lets get some fuel efficient cars on the road first.

Steve

Sorry, one more data point. In 2008 the median age for cars was 9.4 and for trucks was 7.6. Over half the cars on the road are more than 9 years old!!

http://www.reuters.com/article/pressRelease/idUS145274+03-Mar-2009+PRN20090303

Ferd Dong

To persuade (force) people to focus upon developing and buying green technologies (like hybrid cars and solar power), gasoline must cost over three dollars per gallon (or possibly over four dollars per gallon). So I would support additional taxes that raise gasoline prices to those levels. However, many people distrust politicians and do not believe that the additional revenue would actually go to developing new technologies or reducing the Federal deficit (or other worthy causes as mentioned in the article). President Obama pushes for transparancy, but more is needed (such as periodic public reports on where tax revenue is spent). Maybe tax increases would be tolerated (or even supported) by the general public if there were conditions attached so that we could vote to end the taxes if the revenue is not shown to go to these causes.

gasoline

As nearly half our domestic and imported oil is consumed primarily in the form
of gasoline to fuel personal vehicles, this is where we need to focus a great deal
of our attention and investment dollars.

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