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April 28, 2005

The Glory of the Feebate

Sigh. The Weekly Standard is right. The gas tax is actually a bad idea. I've advocated for it in the past, and many have done the same recently, but it's a poor way to deal with the energy crisis.

The gas tax fails because it penalizes folks for conditions outside their control. We generally imagine the tax as nailing those morons peering down from Hummers, but most of the affluent, insecure drivers who're purchasing a tank for their morning commute do so fully aware that the gas bill will sting. They can take the hit. But the gas tax disproportionately hurts two other groups who don't deserve it: the poor, and the rural. The former often drive inefficient, older vehicles, and are simply less able to use them when gas prices and taxes rise. The latter don't have public transportation options and often have to go much farther to complete basic tasks, like food shopping or taking their kids to school.

And all that'd be okay if there was some compelling evidence that a gas tax would seriously cut down on driving, but there isn't. Demand for driving is less elastic than we like to think, and it's been proving itself thus in the past few months. People's lifestyles revolve around the convenience of cars, and if they possibly can afford it, they will pay quite a bit to avoid slowing the odometer's daily advance. Unless we jacked fuel up to $7 a gallon, we're not going to seriously dent road habits. And since the only tax that's in any way possible a 25 or 50 cents, this'll be nothing but a regressive revenue raiser -- you're not going to solve the oil crisis.

But when trying to cut our crude consumption, it's important to remember that the problem is less how much we drive and more what we drive. The average consumer, when making a purchase that stretches far into five digits, doesn't usually think about lifetime costs. They're worried about the rebate they can get at the dealer, not necessarily a difference of five miles-per-gallon. So Explorers and trucks suffer very little -- normally, at least -- from their fuel costs because consumers are a bit near-sighted when evaluating costs. But that's what we need to be changing -- we can't wean ourselves off oil so long as Hummers and Explorers sell. And so the trick is incorporating long-term costs into the sticker price.

Now, your friendly neighborhood conservative will point to evidence that sales of gas guzzlers are slowing down already and tell you to sit back, have an iced tea, and let the free market take care of it. Not good enough, we need things to change now. If the government wants to do something to reduce our oil usage, start by slapping a serious feebate on auto purchases. Heavy cars and gas guzzlers get a $3,000 tax tacked onto the price, and hybrids and economy cars get a $3,000 rebate on theirs. Detroit gets a fat sack of money to move quickly and smoothly into the hybrid business, folks see the savings upfront and thus make more energy conscious car decisions, and we use way less fuel. No one, save those who need huge cars for their business, is hurt by circumstances outside their control. But even they'll only be temporarily penalized as the market will beg for fuel efficient trucks and SUVs (like the Ford Hybrid), and automakers will race to place them in showrooms.

So the Standard is right -- no gas tax. What we need isn't to penalize drivers for decisions they've already made or situations they have no control over, but to tweak the market a bit and bring long-term costs to the consumer's attention when they can still do something about them. A nice, fat feebate does exactly that.

April 28, 2005 in Energy | Permalink

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Comments

the demand for gas is inelastic in the short-run, so paying higher prices at the pump, for whatever reason, is going to reduce people's total income, and make them mad (having your income reduced will do that).

however, in the long-run, demand for gas is very, very elastic, which is why producers of oil have always been leery to big price run-ups. Give people a chance to invest in smaller, lighter automobiles (with less acceleration potential - the real key to high gas mileage) or hybrids or whatever, and gas consumption will decline markedly.

Posted by: Bruce Wilder | Apr 28, 2005 1:23:13 AM

Right -- that's true. I don't mean the real amount of gas used so much as miles driven. I'll clarify.

Posted by: Ezra | Apr 28, 2005 1:33:22 AM

The Congress, which won't even raise mileage standards or can the SUV business deduction, is never, ever going to do this. If you change car prices, that will only change behavior when people buy cars. Gas taxes are set by the states (paying for road construction and maintenance in most of them), so many larger rural states already have lower rates. And the poor are more likely to be in areas where there are alternatives to driving. Want to reduce gas use right away? Add on a federal gas tax and split it with the states. If a state wants to cut its own tax, it can. Your insecure rich person will figure $3K is just $50/month for the next five years and shrug.

Posted by: Come on now | Apr 28, 2005 2:07:08 AM

No, increased gas taxes as part of a bigger package are a good idea. More later.

(I just lost a whole hour's composition somehow, but maybe I'll try again tomorrow. Damn that makes me furious. Blogging and commenting won't be right until a way to save non-final work - preview should do this - is provided, along with built-in spell checking.)

Posted by: JimPortlandOR | Apr 28, 2005 4:02:55 AM

You're partly right in that a 50c increase won't do much. But in Europe (or for that matter Japan), where as you know petrol/gas costs a lot more, fuel efficiency is definitely a key factor when people choose a car. This has a huge impact - according to the French environment agency, average fuel consumption in Europe is 43mpg, 47% better than in the US. In France, the average mileage for new cars is 46mpg. Furthermore, miles driven per car are much, much lower in Europe, although a lot of that has to do with the availability of public transport, and the compact layout of European cities.

Posted by: Ginger Yellow | Apr 28, 2005 6:11:57 AM

Why can't a tax increase in gas correspond to a decrease in another regressive tax, like payroll taxes? That way, the poor would end up with no net change. However, I'm not familiar enough with rural drivers to think of a solution there.

Posted by: Eric | Apr 28, 2005 8:20:32 AM

The rural situation makes it difficult to reduce diving if you aren't retired. I've advocated for a better public transportation system that includes rural areas. Park and ride can help commuters but public transportation is almost nonexistant. I'm for increasing the train system with better connections.

Posted by: Nora L. Ingram | Apr 28, 2005 8:47:54 AM

If only we'd listed to Jimmy Carter when he said we'd run out of oil circa 1990 we'd be fine.

Posted by: Ugh | Apr 28, 2005 9:03:48 AM

How about tweaking the system they used in Colorado years ago when I lived there, and still use in Nevada (according to a friend who lives there)? Tie the price of your license plates or license tags to the value of the car--and slap a luxury tax on the behemoths that guzzle the worst. This hits everybody a little, but rewards people who drive older cars instead of buying a brand new Beemer every two years, or the latest Hummer.

Posted by: Michael | Apr 28, 2005 9:24:08 AM

as far as gas taxes, i'm neutral but i dont think giving detroit a sack of cash would help. what a smart dem candidature would do would be to promise detroit a universal/single-payer national healtcare program, if only they produced CAFE2 or stricter sstandards for fuel consumption and emmission standards. GM for one would jump like a madcat at the proposal, and i doubt ford or chrysler would be averse to it.

Posted by: almostinfamous | Apr 28, 2005 9:54:45 AM

heresy! I can understand the politics here, but on substance the gas tax is elegant and much easier to administer than a feebate program.

Posted by: praktike | Apr 28, 2005 10:15:25 AM

How about a tariff on oil imports to fund mass transit in urban areas and Amtrak/train expansion. The working poor and people in rural zips can get a tax deduction/exemption.

Posted by: fightingdem | Apr 28, 2005 10:49:31 AM

Didn't Clinton & Gore launch some giant initiative with the Big 3 around 1994 to do just what Ezra is proposing? Whatever happened to that?

Posted by: Ugh | Apr 28, 2005 11:13:09 AM

This is the right idea:

Why can't a tax increase in gas correspond to a decrease in another regressive tax, like payroll taxes? That way, the poor would end up with no net change. However, I'm not familiar enough with rural drivers to think of a solution there.

Posted by: c. | Apr 28, 2005 11:25:25 AM

Oy. now I actually read the article. Really stupid stuff, Ezra. Shame on you.

Posted by: praktike | Apr 28, 2005 11:51:22 AM

Here is an idea for a gas tax.

Any fill over 15 gallons will get super taxed. Granted savy consumers will fill up more often in order to avoid the tax. but lazy rich folks drivin the hummers will not want to stop every 5 miles to fill up their tank.

it is a seemingly simple progressive tax that can be implemented without affecting poorer people.

and should hit those gas guzzlers a bit more.

also there are tax benefits for buying SUVs. I don;t think repealing those rebates has made it to the energy policy of brother Bush.

then there is always BIODIESEL

Posted by: media in trouble | Apr 28, 2005 1:11:48 PM

Are you suggesting that it is unfair to tax people's short-term inability to make wise decisions (i.e., buying an Explorer) with a tax that emphasizes their short-term idiocy?

Come one, point out the idiocy and forgive it, or don't point it out and tax it. DON'T refuse to acknowledge the idiocy and at the same time refuse to tax it. That's silly, and tha's why there are a zillion folks driving SUVs.

Posted by: abjectfunk | Apr 28, 2005 1:34:54 PM

Prak -- I actually didn't read the article, I just noticed it and decided to write on why i thought gas taxes are wrong ;)

Abject -- I've no interest in punishing anyone for anything. I want to change habits and buying decisions, and a gas tax doesn't do it. Once they've got the car, they're going to buy gas for it. So we're just charging folks more for purchases they've already made, hurting those in rural areas, and using a regressive tax to do the whole thing. Much better to stop folks from buying SUVs in the first place.

Posted by: Ezra | Apr 28, 2005 1:56:34 PM

There's another group you left out, Ezra; Doozers. I drive, depending on the amount and location of work I do, between 30,000 and 50,000 miles a year, much of it with a good load on the truck. I drive a small truck that gets pretty good mileage, but that's still a chunk of change, at $2+/gallon. I wish I could do this with a 50 mpg Hybrid 2-seater, but I can't, and there's no compensation for the higher fuel cost for us sub-sub-sub-subcontractors, except what the IRS gives us at the end of the year, which aint much.

this'll be nothing but a regressive revenue raiser -- you're not going to solve the oil crisis.

Preznit Boorish never met an R3 he didn't like. And solving the Oil Crisis is just so not an oilman's job, now is it? We're doomed...

Posted by: Doozer, the Obtuse Caboose | Apr 28, 2005 2:14:01 PM

Oy gevalt

Ezra:

“In this study the short run estimated elasticity of demand is -0.442, of which half comes from changes in miles per gallon. In the long run, demand is more elastic than -0.778 [sic], of which nine-tenths comes from changes in miles per gallon.”

Dahl, Carol A. 1979. “Consumer Adjustment to a Gasoline Tax.” Review of Economics and Statistics 61 (Aug.): 427-32.

Available on Jstor here.

In other words, in the long run, changes in efficientcy and not mileage drive the demand for oil.

Posted by: TheJew | Apr 28, 2005 3:34:20 PM

Ezra -- to me, the most compelling reason to avoid a fuel tax is that it inadvertantly punishes renewables containing carbon. The argument goes something like: if you invent a carboniferous fuel replacement (say, photocatalytic methanol, or better, iso-octane, as has been suggested by Nobel laureate Rick Smalley), suddenly, the state is taxing that, too, even though it's actually less polluting from a greenhouse standpoint. Further, it points the state in the direction of dependence on oil revenues, which can't be a good thing.

There's been a widespread assumption that the UK and the EU more generally will be less affected by the consequences of peak oil production. With higher taxes and greater dependency on them, however, how will that play on the ground? If gasoline costs $5-6/gal in the UK now and $2.10/gal in the US, imagine what happens if the difference stays about the same but the cost doubles.

Posted by: Rob McMillin | Apr 28, 2005 5:24:53 PM

Think about it this way...eventually we are going to have higher gas prices. If we do nothing and just keep on truckin', we are going to see $5 gas, $10 gas and above, eventually. Is there going to be pain? You bet there's going to be pain. Is that pain going to regressive? Unfortunatly so.

What the Gasoline tax does is spread the pain so that we take many little licks instead of one big knock. Give the market time, and it will come up with changes to absorb the higher gas prices -- fuel efficiency will go up, alternative fuels will become more popular. Yes, there will be pain. Yes, that pain will be regressive. But our choice is not between taking the pain or avoiding the pain, it is between taking it now, and putting it off for later.

Posted by: battlepanda | Apr 28, 2005 5:46:54 PM

The Hybrid(s) roll-out from the major
manufacturers will be continuing over the next couple of years. I would like to see more (benefits vs. costs) in-depth analysis done by experts so that consumers can make sound and sensible hybrid-automobile purchases.

Posted by: Eddie | Apr 28, 2005 9:37:08 PM

The hybrids look like a good deal for the south. For cold weather people the possible problem of deep-cycle battery inefficiency and freeze-up loom large.

Posted by: opit | Apr 28, 2005 10:43:58 PM


I'd like to see Congress push the automakers to have hybrid power as an option on all their car models, by, say, 2010.

They'd have incentive to come up with standardized components, and packages, which would greatly improve the economies of scale, compared to dipping a toe in the water with a one-off design for a particular model of vehicle (like the Ford SUV).

Ideally, "hybrid" would be just as mundane an option as manual or automatic transmission.

Even if we switch to hydrogen later on, it would be advantageous for them to be hydrogen-electric hybrids. It'd reduce the consumption of hydrogen, and thus reduce the energy needed to generate the hydrogen. (And, if the hydrogen comes from fossil fuels, it'd reduce the use of that, also.)

Further, when hydrogen cars are introduced, filling stations won't be common. So it'd behoove the automakers to make them hybrids, in order to get the greatest range possible between fillups.

Since it'd be a good idea for hydrogen vehicles to be hybrids, and those hydrogen vehicles will be pretty expensive to start, it'd be a good thing if hybrid tech is cheap and widespread by the time the hydrogen cars come out.

Posted by: Jon H | Apr 29, 2005 12:15:23 AM

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