Gasoline is Too Cheap; My Memory Too Short

Gasoline prices, on average, have fallen by more than 25 percent since their peak in early August of this year. In the northeast, where I live, the per-gallon price of gasoline has been hovering around $2.25. In some parts of the country, such as the Gulf coast, the retail price of gasoline is now slightly over two dollars. I like gasoline at two dollars per gallon. And I like it even better at three.

It was at three dollars per gallon, remember, that we were finally going to do it. We were finally going to accept that cheap gasoline was gone forever. We were finally going to make a clean break with wasteful habits, and commit to conservation—which as it turns out, is not merely a personal virtue, but a near-painless way to save a lot of money—as a way of life. We were going to trade in the SUV, shorten commutes, eliminate or consolidate trips, use mass transit, perhaps ride a bike to work on a regular basis.

I made many if not all of those same commitments. I realized that most of the in-town, short hop trips that I made were perfect for an efficient hybrid car, instead of my 20 mpg station wagon. I scanned the bus schedules and found that yes, I could in fact take the (natural gas-powered) bus once or twice a week and not miss any important meetings. Even better, I could ride my bike and enjoy the added benefit of exercise. I was going to change my life, and my little corner of the world, for the better.

That was in August. Prices then started falling, at a rate of 8-10 cents per week, for almost two months. I am still driving my 20 mpg station wagon, still drive to work alone, and have yet to ride the bus. And I am not alone in my short-sighted thinking, and shorter-still attention span. CNN and Fortune Magazine have reported that in October, Toyota Prius sales softened and that year-to-date sales of the hybrid are actually down compared to last year. Sales of smaller cars from the big three are flat in general, whereas sales of big domestic SUVs have again spiked up. Conservation seems to be the most fickle of our personal virtues. Indeed, we went through this same exercise the first two times that gasoline hit three dollars per gallon (in current dollar terms), the first two times that we said cheap gasoline was gone forever—in 1981, and again in September 2005, according to the US Energy Information Agency.

What’s missing in our convictions is an honest assessment of why we’re willing to overcome our lifestyle-inertia and commit to conservation, when we actually do so: because it hurts our wallets to do otherwise. Yes, we all want to stop global warming, yes we all want to preserve the environment and a healthy standard of living for our children. And for a select few, those desires alone are sufficient to provide a lifetime of motivation. The rest of us, myself included, are aware that these are, in fact, moral choices we are making; but the immediate impact of these choices is small, diffuse, and easily overlooked in lives that are already too crowded with competing, shrill demands for our attention, many of which are also claiming to be moral choices. We then let the economics of gasoline help us decide when to do the right thing. But note that we will make these abrupt changes because of the fill-up price, though the cost of gasoline is often one of the cheaper constituents in the overall cost of owning and operating our cars. Even at $3 per gallon and 15 mpg, the per-mile costs of depreciation, insurance and maintenance can overwhelm the 20 cents per mile cost of gasoline.

If changing behavior is what we truly want—that is, to change our habits so as to make conservation of energy a way of life, and not merely a fad—then we need a persistent, if not permanent stimulus that brings our latent virtues back to life. If we wait long enough, the market forces will undoubtedly provide the necessary stimuli as oil becomes less plentiful, and gasoline more expensive. That will likely be too late to even slow the effects of global warming, much less halt or reverse them.

What we need is an abrupt, persistent and painfully sharp increase in the price of gasoline. A new federal gas tax. A large one. We have good evidence, personally, and as a nation, that it is price, more than any other factor, that will drive the conservation of energy. The oil shocks of the 70’s and early 80’s spurred a wave of conservation and efficiency regulation and investments, which resulted in the 80’s in a shrinking oil demand, despite a growing economy (re the preceding two links: after peaking 1979, US oil consumption did not surpass its 1979 value until 1999; similarly, total US energy consumption did not surpass its 1979 value until 1988; yet during these periods the economy grew at real, annualized rates of 3.1 and 2.4 percent, respectively). More recently, the Enron electricity crisis in California was not resolved by the addition of new electrical power plants, but rather by a drop in demand—conservation.

A sudden increase in the price of gasoline, whether by tax or otherwise, will undoubtedly ripple painfully throughout the entire economy, as it has many times in the past. Transportation and farming sectors will be hit particularly hard, as will the working poor, who will spend a disproportionate share of their incomes on the price increase. But unlike a price surge due to an oil shortage, a gasoline tax increase is within our control; through legislation, we dictate when it will occur, and can plan and prepare for it.

Perhaps that is, after all, the most compelling reason for a large gasoline tax: it shows the world, and us, that we are being proactive and actually planning for the inevitable fact that cheap gasoline and cheap energy are not forever. Perhaps then personal virtue and a sound energy policy can actually reinforce each other.