Fuel Efficiency or Fuel Consumption?
One piece of "news" yesterday was the change in fuel efficiency standards on the horizon. From the Associated Press:
Also, Obama directed federal transportation officials to get going on new fuel efficiency rules, which will affect cars produced and sold for the 2011 model year. That step was needed to enforce a 2007 energy law, which calls for cars and trucks to be more efficient every year, to at least 35 miles per gallon by 2020.
Obama also meant to set a tone with his promises: Science will trump ideology and special interests, attention will stay high even when gas prices fall.
It was a none-too-subtle admonishing of previous administrations, chiefly George W. Bush's.
"It falls on us to choose whether to risk the peril that comes with our current course or to seize the promise of energy independence," Obama said. "And for the sake of our security, our economy and our planet, we must have the courage and the commitment to change."
Obama put that peril he mentioned in stark terms. He said dependence on foreign oil "bankrolls dictators, pays for nuclear proliferation and funds both sides of our struggle against terrorism. It puts the American people at the mercy of shifting gas prices, stifles innovation and sets back our ability to compete."
I like the direction of the policy, but my longstanding objections to the CAFE standards bear repeating:
First, as a means of addressing fuel consumption in vehicles, CAFE standards are a crude instrument. Total fuel consumption depends on the average fuel efficiency of all cars on the road and the total amount of miles driven. CAFE standards improve the efficiency of the newest cars on the road at the point of sale but do nothing for the efficiency of existing cars, the efficiency of new cars after the point of sale (e.g. maintenance), or the total miles driven by new or existing cars. By contrast, a tax on gasoline operates on all relevant margins to reduce consumption -- what you drive, how you drive it, and how much you drive it.
Second, as a matter of policy, CAFE standards focus too much on automobiles and too little on other areas. What about jet fuel? What about home heating oil? Periodically, the Congress and the President do the "heavy" lifting of passing new CAFE standards and then do nothing to discourage fuel consumption on the runways or at the thermostat or anywhere else. The policy is inadequate, and the incidence falls too much on people who "need" to drive large vehicles over large distances.
It is the barrel of oil that bankrolls the dictators, regardless of how it is used. So to stop bankrolling the dictators, discourage the consumption of oil in all of its forms. Impose a tax on each barrel of oil.
Efficiency or Equity & gallons per mile
How do you accomplish this when the Constitution gives so much power to states with huge land area and relatively small populations, who feel they would be unfairly punished for needing to drive?
I think anyone with a brain understands the efficiency argument of gas or energy taxes. The political problem is an issue of distribution. Densely populated areas benefit disproportionately; rural ones lose.
Also, another argument with CAFE standards: The actual physical volume of gas saved by increasing fuel efficiency from say 25 to 35 mpg is much much much less than increasing fuel efficiency from 10 to 20 mpg. Better to think from a gallons per mile perspective. We need to focus on getting rid of lowest efficiency vehicles.
You Bribe Them
I see your point on gallons per mile.
I think that the right way to go about the political problem is to compensate them for their losses. For example, we could rebate the proceeds of the fuel tax to states based on their share of national fuel consumption in some base year, like 2008. This leaves them on average unaffected but still facing the same incentives as everyone else to use less fuel.
Compensation would be
Compensation would be sensible, so why do you think it never gets proposed. I understand there are all sorts of complex log-rolling going on in the legislative process, by why is it so hard to get such a straightforward proposal of explicit compensation though?
Import fees are better than per gallon taxes
You both forget an obvious point. We are not necessarily interested in discouraging the use of petroleum from domestic sources, nor petroleum from all foreign sources. We built an economy that depends on petroleum so thoroughly that per gallon gasoline taxes are capable of causing serious economic damage and no one has ever come up with a feasible rebate mechanism that avoids the damage. Per gallon energy taxes are regressive and do the most damage to the poor and lower middle class. Even the most committed energy policy purist would be irrepsonsible to propose them in the current economic circumstances.
The correct policy response is an import fee levied on imports from petroleum exporting countries that either participate in production cartels, or who deny American companies equal access to petroleum development. Does this violate most-favored-nation principles for international trade? No, becuase the US has been careful to always exempt the international energy trade from these considerations in its bilateral trade treaties.
Some replies
Point taken on the import fees, though only some of the arguments against our fuel consumption depend on whether the source is foreign or domestic. You might be interested in this proposal.
In the comments, we were discussing ways to compensate those who were affected by the higher gas tax. The rebate based on prior usage is available to help offset the impact on lower income households, though there is also evidence that gasoline taxes are not as regressive as is commonly believed.
As to the earlier question of why compensation is not proposed, I think the prospect of compensating the losers only emphasizes the point that there are losers, whereas the alternatives (like CAFE standards or cap-and-trade) are discussed in such a way that the proponents obscure the fact that there are losers.
I think this point about
I think this point about unwillingness to acknowledge losers, even when you offer to compensate them is extremely important. It's a shame there are no adults in Congress.
More on various energy tax schemes
1.) The paper you cite as evidence for the non-regressivity of gasoline taxes seems more than a bit far fetched. Take a look at energy use broken out both by income and consumption percentile. After a quick check of EIA's web site, I could only come up with one on electricity use rather than transportation fuels, see
http://www.eia.doe.gov/emeu/consumptionbriefs/recs/percentiles/el_income...
Assuming that it is a fair proxy for the data we need(which is a big assumption) how could you conclude that a gas tax wouldn't be severely regressive?
2.) Imagine you're the poor budget wonk that has to calculate "The rebate based on prior usage [in order to] help offset the impact on lower income households." If you rebate to individuals, as you'd arguably have to do in order to ameliorate the damage done to individuals, you'd have to be able to prove how much gasoline a given person used, their income level, how far they drove, etc. Even if this mythical person only used one national credit card for all purchases and kept meticulous records you still wouldn't know milage, since no one not claiming a tax deduction on their car is required to keep it. Certainly the oil companies don't. This is only the beginning of the problem. These statistics can be estimated at an aggregate level more easily, but you still wouldn't come up with an effective scheme for rebating the gas tax. And to the extent you didn't the rebates wouldn't undo the damage.
3.) We agree on the point that there certainly are losers to cap-and-trade and to café standards. Massive losers. Cap and trade just wouldn't work, not just satisfactorily, it wouldn't work at all, but that is another argument. Cafe standards work but they were conclusively gamed by Congress and the auto industry in the mid 1970s through the truck frame exemption, which resulted in the proliferation of SUVs and other horrors.
4.) Keep in mind that fuel consumption correlates almost exactly with economic growth. If you want to reduce energy demand or carbon dioxide consumption, throw the economy into recession and vice versa. We are about to get one of the very few drops in greenhouse gas production and energy consumption but only because the economy is going off the cliff. If you want to reduce CO2 and increase economic growth, the only [practical] way to do it is to substitute nuclear for fossil fuels and bring on the plug-in hybrids.
5.) Import fees on selected foreign oil also don't penalize the domestic petroleum industry and they help protect the value of alternate fuel investments.