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Why Gasoline Should Cost $10 per Gallon

by AJ Rossi | University of Pennsylvania

F Posted in: News and Politics, Voices P Posted on: February 3, 2012
headshot aj rossi AJ Rossi

Well, maybe not $10 per gallon. But domestic gasoline prices should realistically be around $6 per gallon. Relative to the rest of the world, gasoline is comparatively cheap in the United States, resulting in an unhealthy political-economic dependence on foreign hydrocarbons that contribute to CO2 emissions and global climate change.

How to break the addiction? Hit Americans where it hurts: in the wallet.

In theory, fuel-efficient cars and a reduced carbon footprint are great ideas. People love the concept of buying a quiet, stylish hybrid or the newest “flex fuel” F-150. Yet “going green” will not ultimately motivate people when they can simply free-ride on the environmental efforts of others. Nor will the threat of being diplomatically handcuffed due to foreign dependence. Instead, the best way to overcome this collective action problem is by employing economic incentives.

It is not just that Americans are stereotypically lazy and don’t want to ride bikes or take the subway; we live in a geographically spread-out nation with a life style that requires more constant commuting over larger distances than in most other countries. The only way people will change their consumption habits is if either the supply runs out or prices rise. Thus, raising the price of gasoline through the federal excise tax will help free America from its reliance.

European gas prices are nearly double what Americans pay at the pump, and only Kuwait and Saudi Arabia (both net exporters of oil) charge lower gasoline taxes than the U.S. The federal excise tax on gasoline is 18.4¢ per gal, and it has not changed in over 18 years. What impetus is there for technological innovation when gas is so inexpensive? Mandates requiring higher efficiency standards for vehicles are merely a stop-gap measure; fuel efficiency only reduces our carbon footprint and oil dependency so much. In fact, investing in higher MPG technology allows the driving population to drive more than before, but with the same gasoline consumption.

Taxing gasoline would not only help relieve America’s dependence on oil, fight global climate change, and stimulate R&D in alternative energy sources and vehicle design, but it would raise much needed revenue for the federal government. With an embarrassing public transportation system (compare Amtrak to Eurorail, for example), heavy reliance on individual cars and trucks has resulted in significant wear to our highway infrastructure. The gasoline tax was last raised in 1993, and even then it was not indexed for inflation.

The result? Erosion in the value of the tax and decreasing finances for the Highway Trust Fund, leading to a lack of maintenance of roads, bridges, and toll systems. Additional revenue from the tax could be put toward further improving (rather than simply repairing) our urban and regional public transportation systems, as well as reducing public transport fares in an effort to increase the use of these services.

Unfortunately, any significant increase in the gas tax has little hope of implementation, especially in today’s tenuous economic situation. Increasing the final price of oil at the pump would be extremely painful in the short run before non-cost-prohibitive alternatives fully reach the market, something that politicians cannot afford with elections looming. Consumers’ purchasing power would be negatively affected, and the economy as a whole would suffer.

At least, that is what the powerful oil lobbyists want you to believe.

If, as oil producers argue, gasoline is so vital to the American economy, an increase in the price per barrel would cause a serious shock, yet manufacturers and consumers would have no alternative but to continue buying due to the inelasticity of demand. In reality, however, the demand for gasoline is responsive to changes in price. Look no further than the large decrease in gallons purchased during July 2008 and then in June 2011 when average gas prices neared or eclipsed $4 per gallon. During that time, the number of hybrid cars purchased also spiked. These trends reflect the reality that, for many Americans, much of driving is discretionary, both in terms of the number of miles driven and the unnecessary ownership of gas-guzzling SUV’s.

Despite its positive economic consequences, the gas tax – like most taxes – is highly unpopular. Nearly everyone drives a car and must buy gas, and no politician wants to displease the majority of his or her constituents. This pressure is further compounded by domestic oil producers who have clear interests in keeping the gas tax low (especially if the demand for gasoline is at all elastic). Gas tax proponents, meanwhile, are comprised primarily of eco-minded environmentalists or producers/developers of alternative energy sources such as wind, hydrogen fuel cells, nuclear, geothermal, and solar. We can see the conflict between these opposing interest groups in the current presidential campaign rhetoric.

In his recent State of the Union address on January 24, President Obama described a focus on decreasing our dependence on foreign energy not by reducing consumption overall, but rather through bolstering America’s production of natural gas. Yes, the president is also implementing many policies aimed at helping alternative energy industries, and rhetorically, this sounds great. Yet, without weaning the population off of its oil dependency through economic pressure, there is no incentive for consumers to change their behavior or for producers to sell a more expensive product that nobody needs.

On the other side of the political aisle, Mitt Romney’s early campaigning has straddled the fence in the climate change and alternative energy debate. Without definitively taking a position on the extent to which global warming is a man-made reality, the presidential candidate has promoted energy independence solutions like technological innovation and the development of alternative energy sources, emphasizing the importance of solar, wind, nuclear and clean coal, as well as biodiesel and ethanol substitutes. At the same time, however, Romney has indirectly endorsed the temporary solution of increasing domestic oil production by calling for additional drilling in North Dakota, the Marcellus Oil Shale (Pennsylvania), the Outer Continental Shelf, and the Arctic National Wildlife Refuge.

At the end of the day, America is not going to jump from an economy dominated by petrol to one featuring green alternatives overnight. Innovation has been slow and unaided by cheap oil.

Yet there is progress. Hydrogen fuel cell technology has advanced; already on the market is Honda’s FCX Clarity in Southern California, where hydrogen fueling stations are available, and several different models of electric cars are currently in mass production. This is an ongoing process that a gasoline tax, steadily increased over the next several years to a level consistent with the global average and reflecting the true social cost of oil consumption, can work to ameliorate.

Change is painful, but that is the point.

AJ Rossi AJ Rossi Currently a sophomore at the University of Pennsylvania, AJ is studying Political Science and Economics in the College of Arts and Sciences.

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