There is a reasonable likelihood that doubling the effective price of gas could dramatically reduce consumption just through price elasticity alone. For those of you not familiar with retail sales economics, price elasticity is the relationship between the price of goods and the volume of sales at that price. If you lower the price, you sell more (the volume increases), and conversely, if you price goods higher, your sales volume will decrease. So retail sales strategy is all about picking the right price so that your sales price times the volume of sales is maximized (to maximize total revenues). So if the US raises the price of gasoline with an aggressive tax, the sales volume should decrease substantially.
The other effect such a tax levy might induce is that alternative energy sources could immediately become more cost effective relative to gasoline, and that economic advantage combined with simple market forces would likely drive entire energy, automotive and aviation industries to undertake much more accelerated transitions to alternative renewable energy sources and further decrease gasoline consumption.
But of course, there is one giant sector of the US economy that has understandably dug in its heals at the prospect of such a tax. The Oil industry would clearly be decimated if the US’s per-capita gas consumption was cut to one-quarter of its current rate, and they have understandably invested hundreds of millions of dollars in lobbying efforts and supportive politicians to vigorously resist the introduction of any tax that would have even the slightest deleterious effect on consumption.
But government is supposed to be about understanding, planning for, and managing the larger-scale and longer-term consequences of suborning the national economy to a single (even an important) special interest. A committed and creative administration could even come up with solutions such as applying the proceeds of such a tax to support the very industries that might suffer through such a transition that is critical to national interests. Imagine if that flood of tax proceeds was directed solely to the energy industry companies for use in transitioning to renewable energy sources? Then Chevron and Exxon/Mobile would have a lot less to complain about. Would they come along willingly? Probably not, because that sort of sea change would put their core business at risk, and even with a generous R&D and new infrastructure tax subsidy they might have to sacrifice some of their record-breaking profits to stay ahead of some smaller and more aggressive companies that are starting from the same level as far as renewable energy investment goes.
But I’ve always said that you can tell how serious someone is about fixing a problem by how seriously they will impose penalties to change someone’s behavior. So far, our efforts at reducing foreign energy dependence strike me as so much lip service. Yes, the analogy is a stretch, but I find the situation strikingly similar to Hockey. The sporting industry’s half-hearted testimonials that hockey really is about the sport don’t jibe with the fact that purposefully splitting someone’s head open with your stick and then taking several swings at someone to start a bench-clearing brawl results in a few minutes in the penalty box. That just strikes me as not all that different from giving your toddler a 3 minute time-out for taking a switch blade to a playing companion. As they say in the Big House, the time must fit the crime. So examining the longstanding lax discipline in hockey, one can only conclude that they aren’t all that serious about fixing any problem with the sport and that perhaps they need the sensationalism to draw crowds, as with Circus Maximus at its peak. If someone is really serious about fixing problem behaviors, discipline must be meaningful.
If Brazil can become energy independent in about 12 years through strong government direction, how long should it take the US? When will our government finally begin to lead a concerted effort. I bet we could cut that time in half if we just quadrupled the gasoline tax.
Anyone else have other suggestions or comments?