September 4, 2008
When it comes to fuel prices and energy independence, the watchword is 'no pain, no gain.'
THE PRICE of crude oil is falling sharply. It closed at less than $110 a barrel yesterday -- down almost $38 since its July peak. The slack oil market has translated into direct relief at the pump, with regular gasoline now 19 cents a gallon cheaper than it was a month ago. Great news, right? The U.S. economy can grow faster with less risk of inflation; the potential benefits range from brisker domestic car sales to less pressure on state and local government budgets. So much for those evil speculators driving us all to the poorhouse!
But wait a minute. If oil prices keep going down, what will happen to all the progress the United States has just made toward energy independence? Higher gas prices caused U.S. motorists to drive 12.2 billion fewer miles in June compared with a year earlier, according to the Transportation Department. This wiped out the previous five years' worth of growth in gasoline demand, the American Petroleum Institute reports. As a result, we all enjoyed less traffic (and fewer traffic deaths), cleaner air and greater national security.
We are living through a very valuable lesson in applied economics. The United States can indeed change its energy habits for the better, and it can do so fairly rapidly. We are not quite helplessly addicted to oil. But change comes at a cost. We can pay that price directly through higher prices at the pump. Or we can pay it some other way -- through government subsidies for alternative fuels, for example, or through the costs and risks associated with offshore drilling. When presidential candidates suggest otherwise, either by proposing a summer gasoline tax holiday, as Sen. John McCain (R-Ariz.) did, or by brandishing a windfall oil profits tax, as Sen. Barack Obama (D-Ill.) did, they should not be taken seriously.
Recent experience with higher gasoline prices and lower oil consumption confirms something we have long maintained: A serious national energy policy would include a higher federal per-gallon tax on gasoline. Just a 19-cent increase in the tax, which is currently 18.4 cents a gallon, would lock in the incentives to conserve that have been lost during the past month's price decline. No one would like paying it, but at least Americans would be propping up their own government when they filled their tanks, instead of Saudi Arabia's or Venezuela's. The debate over energy has taken on a welcome new urgency in recent months; until gasoline taxes are a part of that debate, it still won't be urgent enough.