Tax Gas Now

To stimulate the green technology, repair infrastructure, fund transit and save the world, tax gas now.  At this moment, the price of gasoline, our carbon based friend, is $46.28.  At this price, green energy technologies like wind and solar are not competitive.  Energy efficiency improvements on houses do not make economic sense because energy is just too darned cheap. Thus continues our dependency on oil which is contributing to global warming and funding our frenemies in the middle east.  What to do? 

Tax gas now.

Here's how to do it:

First, set a price of crude where energy efficiencies will make economic sense.  Then set a floating tax which will tax up to that price point--i.e. up to that price point, the difference between the market price of oil and the set point will be tax revenue,  after that price point, there will be no need for the tax because the market price of oil will be high enough for green to make economic sense, like, say, last summer.  Finally, use the "carbon" tax on crude to fund green initiatives from green jobs to incentives for green builldings. 

But what about the economy? The trillions in stimulus (which are coming) will have to come from somewhere, might as well be a tax on crude which directly links to the problem. 

UPDATE: My friend Chris Hill at Construction Law wrote a very cogent challenge to the economics of the plan.

UPDATE: The Oil Drum had an answer--lower income taxes to compensate for gas tax.

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Comments (4) Read through and enter the discussion with the form at the end
Justin G. Roy - December 15, 2008 3:29 PM

Shari,

Oddly enough, I had a very similar conversation with a few business friends here in Chicago; imagine a way right, a way left, a few in the middle, and one or two shaking their heads. Add in a few too many cups of coffee, and you can imagine the conversation.

One particularly interesting point that came out of this conversation was: What would stop the merchants from raising the price to the set price-point (post-tax)? Let's face it; if the middle man (or woman) can make a higher profit margin because he/she knows the max-price regardless, they are [probably] going to take it. If so, then the implemented tax would have only existed to put more money into others pockets.

Alternatively, we also came up with the idea that more restrictions could be placed upon the companies to ensure a price increase was not in result of taking advantage of the system. However, could we institute such a rule?

Am I off base here? Could our impromptu group have missed something? Signs point to yes, but I wanted to share with you and get your thoughts.

Justin G. Roy

PS. Keep up the blogging. Everybody here in our office enjoys your posts and we often share with our clients either directly, or through repost on our blog.

Chris Hill - December 15, 2008 6:05 PM

Thanks for the update to your blog. I look forward to continued debate and even occasional agreement! ;)

The Green Decoder - December 16, 2008 10:56 PM

While I am intrigued by the idea, I am not sure this is the solution I would work towards to develop better technologies. In addition to this post, I read the other two list as well, including a portion of the comments.

Several issues I see with the overall idea:

1. For a tax credit to work, people need to pay taxes in the first place. I think a credit is not the answer. With documentation, it could be based on mileage from your vehicle, but that would be a nightmare for auditors to verify. Who gets the credit/deduction? Do you have to own a car? How do you manage it?

2. If you do collect money for "new technologies" how do we ensure they are used for the correct purpose? An environmental "Lock Box"? We all know how that has worked for Social Security.

3. Artificially raising the price of oil does not help improve the development of viable alternatives, it just makes current alternatives viable. When computers first came out, they could do less then a calculator can today and cost thousands of dollars. Today you can buy a computer for several hundred and it can run more processes in an hour than most brains can in a lifetime. Innovation came out of necessity. No one could afford computers when they first came out. So, they got better. Encourage better technologies for cars, don't raise prices today so we are grateful for the new price tomorrow. Find a way to do it better.

As a country we are in a pattern that seems to require the intervention of government to make a difference. Private industry has always been better at innovation than the government. Time to take it back again. We need new innovators, new ideas, better technologies, not more taxes.

Jeromy Murphy - December 17, 2008 12:50 PM

The value of a thing is the price that someone is willing to pay for it. During the recent high gas prices, many pundits were calling for the immediate reduction or elimination of the gas taxes to ease the burden at the pump. But that would only have a temporary effect. Once the tax is removed, the price would soar right back up to the market value.

If taxes were used to set the price at or above a specific threshold, the market value of a gallon of gas would be independent of demand and there would be no speculation. In my opinion, based on my limited understanding of economics (is that enough caveats?), the price of gas would go straight up to the mark and stay there and no taxes would be collected, but the oil producers would be wealthy.

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