To those people hoping to see gasoline return to $1.50 per gallon, I have bad news: The era of cheap energy is over.
The problem is not OPEC, speculators, or China and India. To see the real culprit, just find a mirror. Americans use 10 times more energy than in 1900. We now import 12.5 million barrels per day at a cost of almost $500 billion per year. China, on the other hand, imports 3.4 million barrels per day, and India imports just 1.7.
No matter how much oil still remains throughout the world, if we continue to double consumption every 30—40 years, eventually the supply will be depleted. To look at it another way, we Americans use almost twice as much energy per person and per dollar of GDP as northern Europe and Japan. About half the difference is a pure efficiency difference, and half comes from choosing a more energy-intensive bundle of goods and services.
For instance, our"inner hot rod" demands that we buy vehicles that can go from zero to 60 miles per hour in less than 10 seconds; some vehicles beat seven seconds. If we had kept that performance level at 14 seconds, the average new car sold would get 34 mpg rather than 24 mpg.
Clearly, our cheapest energy resource is conservation. It is less expensive than new energy sources, and it produces no pollution or greenhouse gas emissions. The best way to "drill for energy" is to offer more fuel-efficient vehicles. Unfortunately, changing consumer and producer mind sets by urging people to conserve and make energy-efficient choices has been only partially effective at best.
To motivate everyone, I propose a $4 per gallon gasoline tax, making the price at the pump more in line with the price in Europe, where the economy treats energy as a scarce resource but still functions well. Along with causing heart palpitations in the United States, $8 for a gallon of gasoline would grab people's attention when they shopped for vehicles or thought about making trips.
I estimate that the tax would pull around $600 billion per year from the wallets of consumers. The best way to return that money would be to exempt the first $20,000 of income from the Social Security tax—a regressive tax that hurts the economy. For workers earning the minimum wage, this proposal would increase their annual take-home pay by $2,004. If they currently buy 500 gallons to drive 12,000 miles per year, they could continue to buy 500 gallons. But when faced with a gallon of gasoline priced at $8 or more, most consumers would seek cars with better fuel efficiency, figure out how to drive less, and subsequently spend their incomes on less energy-intensive goods and services. By so doing, they would bolster the economy.
I realize that people would hate a $4 per gallon gasoline tax, but asking people to use less gasoline has not worked long term. The path we are on only leads to higher oil prices, more Middle East conflict, and a drain on the economy.
—Lester B. Lave
Lave is the Tepper School's Harry B. and James H. Higgins Professor of Economics, and he is also director of the Carnegie Mellon Green Design Initiative and co-director of the Carnegie Mellon Electricity Industry Center. He is considered one of the nation's leading energy economists and has been referenced by such publications as The New York Times and The Washington Post.
