February 15, 2015

Cheap Gas? Or a Secure Failure?

Eneref Institute Founding Director, Seth Warren Rose, calls for $3.50 a gallon gas. 

[OPINION]  The low cost of gas today is great, but a secure future is even better.

With gas prices low, Thomas Friedman in The New York Times this week suggests creating a base price for gasoline (not a starting price) of $3.50 a gallon, and investing the additional tax revenue in our infrastructure.

That means that while the gas station’s wholesale cost remains below $3.50, the retail consumer price would be held at $3.50. Only after the wholesale cost rises above $3.50 would the price we pay at the pump rise accordingly.

That’s been about the average price for gas since oil prices recovered from their dramatic fall at the end of 2008. The last time we increased the Federal tax on fuel was in 1993, when it was raised by 18.4 cents per gallon. As long as the additional funds are applied as investments in our future—for roads and bridges—Friedman is right.

Most importantly, a $3.50 base price for gasoline would better prepare us for the inevitable price hikes to come by encouraging further investments in efficiency among consumers and businesses. And because the artificial retail price we would pay at the pump would not change the price an American oil distributor pays on the global market, extremist groups and despotic governments who are supported primarily by oil revenues would not benefit from the 3.50 base price we pay to fill our tanks. In fact, they would be destabilized as we move more quickly into renewables. That’s good for the US economy too, because gas is cheaper than guns — and certainly cheaper than blood.

While a higher gasoline price would burden some sectors of the economy more than others, investing in our infrastructure would put more people to work, benefiting everyone. Long-term gasoline prices are volatile, as anyone older than ten knows, but establishing a base price of $3.50 sets precedent and creates stability. The base price will also make it less painful to absorb the harmful economic effects of future (and inevitable) oil price hikes, because an increase above $3.50 will be smaller than an increase above $2.56, the current national average price of gas.

Many European governments have such policies in place and it may be why Germany is a leader in energy efficiency. Germany has an excise tax and a value added tax, bringing the price for a gallon of gas to $7.00. But Germany probably has the best highways in the world, as well as convenient public transportation. Germans also tend to buy more fuel-efficient cars.

The low cost of gas today is great, but a secure future is even better.


I invite you to follow me on twitter @sethwarrenrose.


Seth Warren Rose
Founding Director, Eneref Institute 
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