Gas prices in the United States are too low. Unlike our European neighbors – for whom taxes represent three-quarters of the price – the United States – at a 10 – 15% rate – does not tax gas at a level that reflects its true cost to society.
The Europeans pay far more for gas than we ever have, and the transporation sector reflects this in well-developed mass transit (paid for by gas taxes) and inter-continental travel, ubiquitous Vespas, walkable neighbourhoods and cities that grow organically around plazas and centers, and smaller, more fuel-efficient cars. Europeans can choose from over 100 cars with a fuel-efficiency of 40mpg or above, as compared to Americans who have 2 choices. Americans use three times as much oil per capita than the Europeans, whose gas consumption has either remained relatively flat or fallen over the past two decades.
U.S. gas prices do not reflect the realities of the supply chain, but instead mirror the mismanagement of energy resources by developing nations that subsidise their fuel at the expense of sound economic growth and the environment. High gas prices are a realistic consequence of today’s energy market – the supply bottlenecks, the cost of exploration and production in deeper waters, the cost of raw materials, the lack of spare capacity, effects of speculation, geopolitical tensions and war. Our relatively low prices mask these realities at the peril/cost of preserving and further entrenching bad habits – our car-centric society, unwalkable cities, inefficient cars, and addiction to the unsustainable technology of the past – that will take us further away from the change that is necessary to rethink our wholly petroleum-dependent transportation sector.
What Americans perceive as high gasoline prices has already influenced consumer behaviour and purchasing patterns, to which industry has had to respond (see SUV/truck sales falling by 30% in the past few months, hybrid and smaller car sales on the rise by nearly 40%, and industry changing production to accommodate new demand patterns). Houston, one of the world’s least-walkable cities by most standards, is starting to build living centers within the city limits where one can run most daily errands within his own condominium community.
Despite the vastness of the United States, adaptation is feasible (with a certain amount of investment and political will) in some permutation in many places, and change is already taking place. Subsidized fuel in other parts of the world only skews economies toward wasteful use of resources - why is the US following an outmoded third world model in its own economy instead of influencing smart growth where we can, by building smarter towns and cities, driving more fuel-efficient vehicles, and promoting mass transit?
Why not open ourselves up to the possibility of something different, innovative, effective? If we can ween ourselves off a petroleum-based transportation sector, and switch to plug-in hybrids, for example, not only will we spark the growth of new technologies, industry and infrastructure, which creates jobs, but we will have access to non-petroleum options for electricity generation. Higher taxes on gasoline can be used to finance a tax rebate for those who will be hardest-hit by rising fuel costs in the short-term, while funding research for cleaner technologies and construction and retrofitting of the requisite infrastructure in the medium to long-term. And these all bode well for mitigating climate change, to boot.
We are a country that has always been at the forefront of technological breakthroughs and innovation. We should update our gas pricing policy to ensure that we remain ahead of the curve in the future.
Evie Zambetakis works on energy security geopolitics at The Brookings Institution.
The content is exclusively the personal opinion of the author. Under no circumstances should the content be attributed to CSIS, Next America, or the author's employer, unless explicitly stated.
Hazards of a High Gas Prices
Our group recognizes the necessity of higher gas prices in order to induce lower consumption, decrease green house gas output, and encourage innovation. Without strong economic incentives the current market equilibrium will stay as it is. However, we do not advocate for an increased gas tax to artificially raise gas prices. The economic costs of doing so likely outweigh the hypothetical benefits.
Evie and Christopher focused much of their argument on the fact that gas consumption involves external costs that are not incorporated into the price system. Yet, this argument assumes we can actually quantify gas consumption’s external cost. Likely, a tax on gas may overestimate the welfare cost of gas consumption and government intervention may actually lead to a worse market failure than before. Furthermore, if we are to tax gas the tax needs to be as close to the negative externality as possible or we risk creating perverse market incentives. For example, many cities that have raised gas taxes actually cause increased gas consumption as citizens drive outside the city to fill-up on the cheaper gas.
We also noticed that the debate so far has been heavily weighted in favor of raising gas prices. It’s important to note though that we may be a bias group since most of us are students and we may focus too much on the long term benefits and underestimate the enormous short term costs of high gas prices. As a nation, we need to prioritize immediate economic stability as people’s livelihoods and the nation’s security are dependent upon it. Raising gas prices can ruin an economy and little innovation occurs during recessions.
Public Transportation: Save Money & Energy
Thanks for opening this topic! Public transportation is a great way to save money and energy at the same time. We al know that daily transportation is necessary in our daily lives. With the economic meltdown and increasing cost of oil prices, more and more people are shifting from using their own cars to using alternative transportation. Since the majority of people in any industrialized country are no longer employed in home agriculture, daily transportation to our chosen vocation is necessary. Anyhow, there are ways to reduce the costs associated with it so you don't need loans just commuting to work. (We are in a recession, but that shouldn't be your only motive to saving money.) Using public transport is a great start. It's cheaper, and since it's publicly funded, it's already paid for. Also, don't drive aggressively. Aggressive driving leads to more wear on brakes, more fuel consumption and wear on the motor and traffic tickets – a cost of daily transportation that is one you really want to avoid.
What would be done with the money?
I would rather pay a dime or quarter per gallon of gas now than $4 or $7 per gallon later. Instead of building more lanes of traffic congestion we should be making an efficient national mass transit system were vans connect to buses which connect to trains which connect to international airlines. the progress so far can be found at http://www.publictransportation.org/.
Low gas prices: Seem great for today, but are bad for the future
Gas prices in the United States are falling below $2 a
gallon after a summer of record high prices. This sudden drop has obvious benefits-- less money spent at the pump means less
money going abroad but there are also drawbacks. Cheap gasoline provides no incentives for Americans to curtail their dependence on foreign oil and offers no encouragement for people to put down the keys to their SUVs and hop on bikes.
We discussed that, even though cheap gas is advantageous on the surface, in the long term, higher prices push us towards a better direction. Scarcity breeds innovation. On the contrary, low gas prices mean there is a limited incentive to develop new renewable energy sources and systems. We talked about how low prices encourages the failing American automakers to perpetuate their outdated production lines and not invest what little
capital they have left towards advancing electric cars.
The environmental impacts of gasoline are overwhelming
our planet, and without financial motivation we will surely continue at a slow rate of change. Because we are already seeing dramatic climate changes with more to come in the next fifty years, there is a small window to adapt. Gas prices are perpetuating this problem because they no longer incentivize consumers or producers to change their old habits.
We talked about another market that is heavily dependent on the price of oil is the chemical industry. Low prices of gas translate to lower prices of plastic, pharmaceuticals and all other petroleum based products. But the carbon-carbon bonds it takes to produce these manufactured goods are difficult to create in a lab, so all of the oil we burn for transportation limits the supply for chemical means. The low price of gasoline once again enables consumers to destroy the limited petroleum on this planet that has an incredible amount of scientific value.
There is also political issues that we discussed. The government subsidies awarded to oil companies are in large part why prices in the U.S. are drastically lower than those of Europe. Americans have a false sense of how much gas should cost because of
this price meddling. Should the government stop paying subsidies to these oil companies to save taxpayer dollars and let the free market take over? Maybe so. If prices go up, people will be more careful with their driving habits, we will have more money for other federal spending and more incentives for the auto industry to "go green" will present themselves.
Like any idea that sounds to good to be true, this one
is. Picture for a moment a family of six, both parents drive sport
utility vehicles and they make their living as farmers. Now imagine
that gas sits at $7.00 per gallon (about the price in your average
European country). How can we expect these people to trade in their gas guzzling vehicles for better fuel economy? Their business and their family need the SUVs not to mention the fact they may not have $50,000 to buy two compact cars especially when their business is probably suffering because of the cost of gas.
This problem is clearly has multiple dimensions from the
government's role in the American auto industry to the environment. How do we convert our industry, and infrastructure at once? Clearly the electric car is more efficient and is the future of automobiles, but should the government have a role in forcing automakers to switch their production? Should gas prices be artificially raised to protect the environment? One thing is clear: low gas prices are great for consumers today but they may cause the humanitarian, environmental and industry crises of tomorrow.*
*This is a collective profile of Dartmouth students, who come together to discuss and debate the topics on NextAmerica. Each comment is an entry that results from our meetings and captures general thoughts of consensus and significant dissenting opinions
Recent Low Prices Could Inhibit Innovation
I have to admit it. Until just recently, I was constantly frustrated by continuous surge in gas prices. Just when you think that prices have peaked or that circumstances couldn't get worse, another "extenuating factor" would drive the prices even higher. It seemed as though the only winners in this gas war were the pockets of the fat cat oil executives.
However, maybe there is a silver lining after all. The recent trend of high gas prices this past summer apparently lowered the overall demand by 5 %( in the US). Suddenly, the sales of those gas guzzling SUVs slowed and consumers demanded vehicles that employ alternate technologies and are more efficient. This consumer demand opened the eyes of automotive executives and they are now scrambling to bring new technologies to the table (or face a further depletion in sales). Suddenly the U.S. is addressing the issue of its dependence on oil, and exciting ideas and technologies are coming to the market.
The recent economic downturn has slashed the price of gas by more than $1.50 per gallon (at least here in State College, Pa). However, I can't say that I'm all that excited by this recent turn of events. My hope is that consumers continue to monitor their consumption and remain steadfast in demanding highly efficient vehicles from the automotive industry. But, it is possible that this recent price drop will put this issue on the back burner and the U.S. will have to scramble again when the next energy crisis arrives. Unfortunately, sometimes we have to learn our lessons the hard way. Hopefully, these recent events have changed the culture enough to do something about our energy needs sooner rather than later.
Nothing will change with cheap gas prices...
I think that if the U.S. sincerely wants to move towards a more secure and friendly environment in the years ahead, it will be impossible to do so without high gas prices. For years, American's have had the luxury of guzzling gas for cheap. This led to nothing less than an addiction to the fuel, and a total neglect for the negative externalities associated with it. As we have come to realize, the dependence on foreign oil, the limited supply of oil in the world, and the negative effect on the environment oil has, have all shed light on the fact that America, and the rest of the world, are going to need to find a new cheap, renewable, and environmentally friendly source of fuel to power the world forward.
With low gas prices, there is almost no incentive for American's to look for other sources of fuel or make lifestyle changes to reduce greenhouse gas emissions. As we have seen with recent gas prices at all time highs— there has been a bottom up movement in becoming more fuel efficient. More people are taking public transportation, trading in their old SUV's for fuel efficient cars, riding bikes, carpooling, and simply not driving as much. This has, in just a short time, forced major companies to begin innovating a providing consumers with new fuel efficient alternatives. Energy companies are looking to innovate and businesses are searching for ways to save on energy costs.
If gas prices should happen to return to their previously low levels, I believe a lot of this progress will end, and American's will revert back to their old habits. Some may say its preposterous to suggest that it is smart to, in a time of economic crisis, try and keep gas prices high— as this will lead to increased prices in food and other living expenses— however if gas prices do not remain high, the consequences in the long run could be much greater. Our planet is hurting and the problem will only get exponentially worse as time moves on. This is the time to begin change, and nothing will ever change with cheap gas prices.
We Need Alternatives
I believe that it's easy to say that gas prices are too cheap if you're in an environment that doesn't require you to own and drive a car on a regular basis. While I do believe that the price of gasoline in the United States does not currently take into account environmental externalities, consumers shouldn't be required to suffer in order to fix a problem that was brought about by the actions of our government. In states like California where gas prices stood around $5/gallon over the summer but no alternative forms of transportation were available because there truly is no public transportation available, individuals found themselves choosing between going to work and buying a gallon of milk. The American public shouldn't have to choose between working and eating.
It's true that Europeans pay a 70% VAT tax on gasoline while the US pays a mere 15%, but EU countries also have a much more effective public transportation system. It's also true that they have more fuel efficient vehicles, but at the same time their carbon emissions standards are much lower than that of the US. While we can't find ourselves return to a gas guzzling nation where everyone owns a Hummer that gives you 10 miles/gallon, the US can't implement higher taxes on citizens who have no other choice but to drive their car until the government decides to put forth a public transportation system that takes away the necessity of driving in this country.
Don't repeat history.
I believe that gas prices are too low. For far too long, Americans have been content with driving around in high emission vehicles that burn fuel at exorbitant rates. Only when gas prices start to truly hit the consumer’s wallet does real change occur. With gas selling in parts of the U.S. for nearly $4 a gallon a need for alternative fuel sources is needed. If gas prices fall back down to an “acceptable” level, i.e. $2.00 per gallon,” I feel that Americans will once again revert to purchasing high emissions vehicles instead of looking for more efficient vehicles. A historical example comes to mind. During the fuel crisis of the 1970s, Americans were energized to buy smaller, more efficient vehicles. In addition to buying better vehicles, other technologies, such as solar power, received a great deal of attention. However, once fuel prices dropped in the late 1970s and stayed low until the late 1990s, Americans moved away from looking for alternative fuels and instead burned gasoline and other fuels at high rates. It is therefore necessary not to repeat this history. It is imperative that gasoline prices remain high—thus driving people to conserve more and demand different sources of energy and hopefully, with the increased emphasis on the environment, cleaner fuel sources. Yes, high gas prices hurt all Americans, but if we continue using gasoline with reckless abandon the environment could be damaged beyond hope. Now is the time for fundamental behavioral change. We have been dependent on oil and gas for over a century, but with resources becoming depleted, it is time to develop alternative fuels and methods of transportation.
The problem of picking favorites
More attention should be shed upon one of the primary problems in the transition to renewable energy: U.S. subsidies for the oil industry (and other losing technologies in the market). According to the 2005 energy bill, the oil industry receives $6 billion a year in subsidies (not to mention additional subsidies for international development), a whopping 52.7% of federal energy subsidies (http://priceofoil.org/wp-content/uploads/2007/01/BestCongress4Oil.pdf). With oil profits constantly reaching new record highs, they are clearly not in need of a federal handout. The problem with these subsidies is two-fold:
1. They don’t achieve their stated goals. The two primary tasks of subsidies are supposed to be to keep prices low and encourage domestic exploration and production. Unfortunately, they do neither. Tufts economist Gilbert Metcalf’s work shows that subsidies reduce oil prices by a massive 0.4 percent and increase domestic production by 0.2 percent, based on generous estimates. (http://article.nationalreview.com/?q=MTZkYjE2ZmYzNThlZDRmNTY2NTNhZTE5N2Z...) The problem is further exacerbated by the fact that the major oil corporations use their cascading profits for share buybacks rather than spending more capital on exploration and production. (http://money.cnn.com/2008/05/06/news/economy/oil_profits_tax/index.htm)
2. They unnecessarily distort the marketplace. Oil will continue to remain a huge part of American society when it receives over half of our energy subsidies. The first step is to cut federal subsidies to oil and gas (and maybe coal). Next, the government should “gently guide” the market, without picking specific technologies to favor, by providing a host of incentives to promote non fossil fuel technology. This will spur needed capital investment to help get the renewable industry off of the ground because investors will feel more secure that the industry in light of federal backing, perhaps even creating a new investment bubble that can provide much-needed short-term economic growth without resorting to a regressive gas tax. At the same time, it will encourage the market to determine the answer to which type of car or power source is the best. As evidenced by the highly controversial debate over biofuels subsidies (which receive 7% of energy subsidies, the same as all other renewables combined), the government’s magic 8 ball doesn’t always work.
Worried about regressive gas taxes? Fund transit
I quite agree with Evie Zambetakis and Christopher Haight, gas prices are too low because they don't include the environmental externalities. That said, Brian Smith is correct that a gas tax or overall carbon tax could be regressive depending on what is done with the money. Haight provides one quite workable solution, provide a rebate.
Another alternative would be to fund mass transit and affordable housing aimed at lower income individuals. Providing better alternatives with the money could accelerate the shift to smart growth.
High Gas Prices Are Great--As Long as They Are Realistic.
As Ms. Zambetakis pointed out, high gas prices, although they are inconvenient to the way that American infrastructure works, also offer a number of positive side effects when viewed through certain ecological, economic and political lenses. For example, recent spikes in the cost of gas have lent new political capitol to government funding of alternative energy research. People have also stopped buying those low-milage SUV's that environmentalists have been complaining about for years. And once again, Americans have decided that its high time we stopped depending on OPEC for energy, and just produce it all ourselves. Whether or not that lofty goal is realistic remains to be seen.
However, my main concern is that many people will look upon this seemingly sudden shift as a temporary inconvenience that we will somehow be able to fix quickly and then get back to living our normal lives. In my opinion, the way in which America has grown in the past 50 years has been based on a reality of cheap oil. Cheap gas allows us to move farther from our food sources and production centers. Think, for example, of the sustainability of the quintessential Suburban community made up of neighborhoods and shops, with nary a farm or factory in sight. I think that in the 21st century, this reality will cease to exist, and what you are seeing now is many Americans awakening to how extraordinarily expensive (especially in terms of transportation and consumption of resources) their seemingly cheap lifestyles have been.
However, does this mean that we should artificially increase the price of gas further? No. I believe that the market and the scarcity of gas will do that for us. What we should do is use the resources we have now to conduct better urban planning and build better resource distribution systems. Whether or not the market dictates that gas is too expensive to base our economy on, that infrastructure will still be valuable.
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A nation is only an individual multiplied.
- Mark Twain
Jed Clampett's Farm was right here in the good ol' USA
Despite the concerns over importing foreign oil, aren't gas prices also related to the fact that the United States is also one of the world's major oil producers?
The only nations that outproduce the U.S. in sheer oil production are Saudi Arabia and Russia (based on my amateur review of the oil production graph over at the always reliable and meticulously researched Wikipedia). If you discount Saudi Arabia as an outlier, and consider the fact that Russia's immense geographic size allows for greater production; it leaves the US as the top producer of oil in the world. The United States' own production looks to me to be a significant factor in domestic petroleum and gas prices.
The Europeans pay more for gas in spite of because their nations are simply not producing as much oil but they are using it (taxes on gas are also a huge issue). It looks to me like simple supply and demand (I'm sure it's way more complicated than this when assessing the economics of the situation however as a non-economist I'll stick to what I know...the brief overview of supply and demand I was provided in the fifth grade). Looking at oil consumption habits on a cursory level, theoretically, the U.S. gas prices should be through the roof when looking at population, geography, and methods of usage.
India is the only other nation (once again, based on the impeccable scholarly analysis on Wikipedia) that sees a huge deficit between oil production and net export. As their economy grows, India seems poised to experience some of the same price problems as the US. There, the Government subsidies that have kept prices low are hurting the state-run oil marketing firms. http://timesofindia.indiatimes.com/Business/India_Business/No_fuel_price_cut_for_now_Deora/articleshow/3433900.cms The increase in industrialization increased demand for oil, which is now increasing prices as India imports more to keep up with demand. Hopefully, the Indians will take heed from the U.S. missteps and start implementing smart research and development at this stage before it runs amuck.
Current gas prices are already high enough to serve as an impetus for change. Right now, major auto manufacturers are scrambling to make up for years of pushing SUVs and pickups on American consumers by touting hybrid models. As they stand right now, gas prices are at a level where they promote change, yet haven't gone so high as to put an insurmountable skid on the American economy.
-NDP
Everyone's Favorite Commodity
I agree with Zambetakis's position that gasoline is far too cheap if the ultimate aim is to foster a secure, relatively inexpensive, and hopefully environmentally friendly energy policy. Without some sort of pricing mechanism, the full cost of gasoline consumption is omitted thus creating a market failure. Cheap gas does not account for the environmental degredation nor does it help ameliorate the risk the country assumes from its dependence on foreign oil (especially the OPEC cartel). In most instances, I would hope the "free market" could function properly without much government interference. However, cheap gasoline is like any other negative externality that will only be fully addressed once an internalization of true social cost is realized. I share a hope for a more diversified field of consumption mechanisms that Smith advocated but doubt those are likely to come along sans some sort of external act. If such incentives for cost-efficient, mass-produced viechles existed, surely someone in our capitalistic society would have exploited it by now. Opening new domestic sources might accomplish some alleviation of the dependency on foreign oil but if it lowers gas prices - as certain supporters have suggested - wouldn't we see a move back to the SUV-laden late 1990s, early 2000s? As for the tax's regressive nature, if implemented with tax rebates to those same poor Smith seems concerned about, the process might even prove more economically efficient overall. And at least a tax on gasoline would also utilize the free market's reliance on free enterprise, as individuals could correspondingly alter their behaviors. Personally, no, I don't want to pay more at the pump either. Yet in the long term, effective policy for long-term success requires some pricing mechanism. The alternatives - a windfall profits tax on oil corporations or just ignoring the problem - are even less attractive than a few less trips to the local gas station.
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