A Better Gas Tax?

This isn’t an argument about whether or not taxes—particularly energy taxes—are “good” or “bad.” Rather, this essay has a narrow focus: IF we’re going to attempt to reduce gasoline demand through taxation, what is the best way to do it?

Here’s my somewhat counter-intuitive theory: to most effectively reduce long-term gasoline demand, gasoline taxes should increase, not decrease, long-term price volatility.

First, let’s look at European gasoline taxes. In the UK, gasoline tax is .50 GBP per liter plus 17% VAT ($3.75/gallon before VAT, $4.42/gallon with VAT). In Germany it’s .65 Euro per liter plus 19% VAT ($3.80 per gallon before VAT, $4.53/gallon with VAT). Compare that with US taxes, which range from a low of $0.26/gallon (Alaska) to a high of $0.63/gallon (California). The much higher European taxes operate to reduce price volatility because they remain static in the face of changes in the underlying price of gasoline. For example, if taxes effectively double the price of gasoline, then a 10% increase in the pre-tax gasoline price results in only a 5% increase in the after-tax price of gasoline paid by the consumer.

Why does price volatility matter? Let’s pretend that individual consumers consciously perform risk-management analysis on their future gas requirements (in decisions such as where to live or what car to drive). In that calculus, the theoretically rational consumer would look at the gas requirement of a purchase at today’s gas price (say, the gas cost of a daily commute). This consumer would also consider the possibility that gas prices would increase or decrease, and calculate the present value of these changes. The key question here is not whether gas will get cheaper, because that only results in making a presently affordable choice still affordable. Rather, the key question is whether it is possible that gas will get so expensive as to force the consumer to forfeit the presently affordable choice. Therefore, the potential for volatility making gas cheaper won’t spur an increase in present demand choices to the same extent that the potential for volatility making gas more expensive will reduce the present demand choices.

Here’s an example. You’re looking in to buying a moving, and the new location is 10 miles (each way) farther to your job. You drive a car that gets 20 mpg (only for the sake of simpler math). If present gas prices are $3/gallon, and you commute to work 200 days per year, then this new location will cost you $600/year more than your old location. If you assume that volatility is low—say, that prices can only move by a factor of 2 either way—then the most you could save is $300/year (at $1.50 gas), and the most additional expense would be $600/year (at $6 gas). However, if volatility is extreme—say a factor of 10 either way—then the most you could save is $540 (at $.30 gas), and the most additional expense would be $6000/year (at $30 gas). The second scenario—more assumed potential for price volatility—will have a greater demand-reducing effect on today’s choices than does the low-volatility assumption because the risk of rising prices is much more potentially damaging than the potential benefit of falling prices.

It’s difficult to compare European and American gas demand (especially the elasticity of that demand) because the culture and built-environment are so different. However, assuming everything else is equal, what happens when the underlying cost of wholesale (pre-tax) gasoline goes from $2/gallon to $4/gallon? In Europe, assuming a gas tax of $5/gallon, the price rises from $7/gallon to $9/gallon—a change of 28.6%. In America, assuming a gas tax of $.50/gallon, the price rises from $2.50/gallon to $4.50/gallon—a change of 80%. When contemplating a consumer choice such as what car to buy (and how much to weigh fuel efficiency) or how long a commute is affordable, the higher volatility regime necessitates that gasoline demand will play a higher role in that decision, all things being equal.

What does this mean? It tells us that, IF the goal of a gasoline tax is to cause consumers to make choices that reduce gasoline demand, then that tax should operate to increase volatility. One way to do this is to make the tax per gallon a function of the price of that gallon of gasoline—for example, make taxes 100% of the wholesale price of exchange traded gasoline on a week-to-week basis. This would, nearly, double the volatility already present in wholesale price swings, whereas setting gasoline tax at a fixed level equal to the price of today’s wholesale price of gasoline (and not adjusting it continually as that price changes) would effectively halve volatility.

So far, this analysis has made one essential assumption—that consumers will rationally consider the risk inherent in future gasoline price swings, and will adjust their risk calculations based on the impact of a changing tax regime. Surely that won’t be universally true, but, in addition to at least some of the general public, more sophisticated businesses will should be able to understand this (especially when the policy is explicitly labeled as intending to increase volatility), and it can be communicated to the public in general as the rationale behind a shift in tax regimes. Getting Americans to consider a gas tax increase as a good idea, of course, is an entirely separate matter!

Do examples from the real world validate this notion that increased price volatility reduces the demand for a commodity? I think it does, at least within the world of energy. As I recently observed, gasoline consumption choices in Germany seem to actually be moving away from efficiency (though I can’t show that this is more than correlation based on anecdotal evidence). Within the US, a recent report by Deloitte concluded that US utilities are focusing on “demand management” and energy efficiency rather than investing in new generating capability precisely because there is increasing uncertainty over the future of regulations on greenhouse gas emissions. The Deloitte report suggests that increasing volatility leads directly to increasing efforts at demand reduction.

While I’m the first to admit that gas taxes are only a preliminary step to dealing with Peak Oil, if we’re going to use them for the purpose of demand reduction, we should do so in an efficient—rather than counter-productive—manner. A common adage is that gas tax must sting in order to work—and a tax that is designed to increase volatility is a tax that is more effective at stinging. Gas taxes should be variable and a percentage of the current underlying price of wholesale gasoline in order to enhance, rather than reduce, the consumer’s exposure to volatility. The pessimist in me realizes that this is very unlikely in America (I think it’s more likely that gas taxes are rolled back to pander to the near-term concerns of voters). Maybe the Europeans will listen—they explicitly use gas tax to reduce demand, and seem to understand that such a tax must sting to work, but currently tax in a counter-productive fashion.

If you want to force people to reduce fuel consumption, then wouldn't an increasing tax work better? Such as a dollar the first year, two the next, and so on. that would assure that everyone factored in an increasing price for fuel.

Sounds good to me. I imagine there are a million ways to do this.

You could allow the tax to increase in lockstep with the commodity above a certain price, and then set a minimum absolute tax amount below some threshold, or even put a floor on the price of the commodity itself. Say gasoline would never be cheaper than $3 a gallon (or whatever), and if the commodity price dipped below that level, the tax would automatically kick in and rise the the level to make it cost $3.

I know the purpose of this exercise is to assess the best way to tax and I agree that a percentage tax is better than a fixed tax. However, we still have the problem that it is very clear that demand elasticity is very low within the U.S. Massive increases in gas prices over the last few years have resulted in almost no reduction in demand. Besides, taxes spread the pain to everyone, the frugal and the extravagant. Under a gas tax regime that actually significantly decreases demand, even a person who consumes below the average consumption will be negatively impacted, especially if he/she is of low or moderate income.

Rationing is the way to go so that those who have figured out a way to consume moderately will experience no tax based increases in price paid. They are rewarded for their frugality. Those who, for whatever reason, consume beyond their allocated amount pay the price at the pump plus the market price of gas certificates or credits. This is similar to a cap and trade system,but applied to consumers. In addition, those without cars, including the poor, can supplement their incomes, or lack thereof, with payments for their gas certificates.

Those of us who have already made choices to reduce our demand would probably fall within a gas ration that reduces the current supply by 20%.

Best hopes for rewarding future frugality and conservation.

There's a huge anti-rationing sentiment in America. We tend to think of it as "communist," "un-American," or against the "free-market." I'm not disagreeing with your suggestion, just suggesting that this policy be framed differently: provide a tax credit (or even an outright rebate) on annual federal tax returns for $XX, equivalent to whatever level tax an individual with "reasonable" consumption would pay (and use that gasoline tax to pay for this rebate). This allows those without cars, or who use very little gasoline, to avoid penalization, without uttering that forbidden word (in American politics): rationing. By the way, we already do this kind of rationing-via-tax code in many places in America.

Nice article, Jeff. I do think that it is more than possible, though that you are overestimating the opposition to rationing in place. In fact, historically speaking, rationing has been a pretty easy sell once enough people want to sell it. I agree that we have a strong prejudice towards free market solutions, but all we need are a very small but highly publicized instances of actual shortages, and people's attitudes generally change quite quickly. I've written more about this here, but I think rationing could enter the bag of tricks really quite rapidly: http://sharonastyk.com/2007/06/15/could-rationing-be-made-palatable/


Hi Sharon,

I completely agree. I wonder if you are familiar with historian Dr. Mark Roodhouse's study of the history of rationing in the UK and the implications for present policy? It is a fascinating piece of work, in which he argues that advocates of carbon rationing can strengthen their case by revisiting the history of rationing during the 1940s and 1950s.

He highlights (among other things) that in 1939 and 1940 the UK government rejected proposals to rely upon increased taxation to cut consumption because the impact of tax rises would be slow and inequitable, and that they instead looked for the best way to cut consumption quickly and ensure that reduced supplies were shared out equitably - rationing.

While Dr. Roodhouse's focus is on carbon, he considers Dr. Fleming's TEQs proposal, which is designed to simultaneously address both climate change and Peak Oil.

Incidentally, I also recently found this rather nice story looking back from 2021 to the day when TEQs were introduced in the UK in 2011!

All the best,

Two things come to mind:
The historical opposition to taxation runs much deeper than any objection to rationing and was a major if not the major driving force in the formation of our country.
We already have a functioning precedent in the way the electrical grid deals with shortages, rationing in the form of rolling blackouts and brownouts.

There's a huge anti-rationing sentiment in America.

Rationing has not been popular elsewhere either. So long as the myth of 'you are upwardly mobile if you work hard' exists in the US of A....so long as people who are not middle class see themselves as middle class....rationing will still be seen as not the best way out.

Rationing was done during WWII, 'accepted' by the population...as it were. The promise was 'there will be an end'. Peak Oil looks to be an unending shortage of liquid fuel.

Before 'rationing' there will be 'fuel for these services paid by taxes 1st at low price' in a reaction to tax load.

I would agree that it is crucial to the public acceptance of rationing that 'there will be an end'. The Mark Roodhouse historical paper I referenced above in my reply to Sharon also emphasises this.

But I would disagree that the permanent nature of Peak Oil implies permanent rationing. The purpose of a well-designed rationing system must be to stimulate and support the transition to a society of leaner energy use. If it achieves its purpose it will make itself obsolete. If it fails in its purpose we will be overwhelmed by climatic feedbacks and a different type of end will be rolling into view...

Under a gas tax regime that actually significantly decreases demand, even a person who consumes below the average consumption will be negatively impacted, especially if he/she is of low or moderate income.

You're assuming that the tax is increased in isolation.  Why?  No less a luminary than T. Boone Pickens has suggested that employment taxes be reduced by the same amount as fuel taxes increase.  This would put money back into the pockets of workers, most of it at the low-income end where employment taxes weigh most heavily.

Rationing is as damaging as the 70's-era gasoline allocations (which produced long gas lines in some parts of the USA and no waits elsewhere).  It fails to influence behavior except at a very arbitrary dividing line.  Take me as an example.  I go through an 18-gallon tank about every 2-3 weeks; if the ration was set at the average consumption of about 12 gallons/week, I'd have plenty left over.  I'd have no incentive to change; I could save fuel, but it wouldn't pay me anything to compensate for the inconvenience.  Neither would it give me any breathing room for an emergency.

A fuel-tax increase would pay me every time I didn't drive someplace, every time I coasted up to a traffic light (which I already do), and for every other act which cuts fuel consumption.  If it was offset by a cut in my FICA taxes, I could just pocket that money and live better.  Rationing has no upside.

If it was offset by a cut in my FICA taxes

Got any proof of this previously occuring?
Any proof of any rollback of any tax anywhere, anytime without being demanded by the constituency?

We seem to be able to get tax cuts for the rich.

If your only purpose here is nay-saying, just GFY.

Your elegant prose and incisive wit will surely attract scores of adherents to your peculiar form of reasoning.
Let me try it, TSTY.

I agree: another aspect of an effective gas tax would be one that increases over time. I like the idea of a gasoline tax in America that increases 20% of the RBOB wholesale price of gasoline each year. Sure, a larger increase would be nice, but political practicalities need to come in to play as well. Just to be clear, the point I'm trying to make in my essay is that this increase should be a % of the underlying RBOB wholesale gasoline price (to increase the consumer's exposure to volatility), not a fixed amount per gallon (such as $.50/year).

I have an idea for a gas tax that makes a lot of sense to me, see if there is a problem that I have not thought of (I am probably not the first to think of it either). Instead of having a straight gas tax that has a strong adverse effect on poor consumers and no political support, collect a large tax on every gallon of gas sold, but then divide up the proceeds evenly and pay all residents back an equal share. So you could institute a $3.00 a gallon/tax but at the end of the year all adult U.S. residents would get a check for X dollars, where x is $.00 times the average per capita fuel use (minus administrative costs).

Using this method the person that uses the average amount of gas would break even, someone using large amounts of gas would pay more, and someone who used little or no gas would get paid a dividend. This would create a strong market incentive to conserve fuel without unduly hurting the poor. OVer time the average fuel use would presumably decline.

There would of course be a number of logistical problems, such as accounting for the transportation industry and regional differences, and how to pay out the dividends, but these could be easily overcome. You amy also want to skim off some of the proceeds for alternative energy research etc.

You amy also want to skim off some of the proceeds for alternative energy research etc.

Thin edge of the wedge my friend. As soon as the politiicans startskimming off a bit here and a bit there, before you know it there is nothing left to be redistributed.

The American taxpayer needs to pay more tax anyway to to reduce the federal and (presumably) state deficits. You also need to reduce oil consumption in toto if you want to combat the huge trade deficits that seem to be finally catching up with your dollar. Two birds, one stone.

The American taxpayer needs to pay more tax anyway to to reduce the federal and (presumably) state deficits.

Or to cover the debt.

I'm waiting for tax protesters to join the constituionilsts, home schoolers, and excessive internet posters as enemies of the state.

The mention of utilities being sensitive to volatility reminded me of how much we focus on TOD on end user behavior. Presumably a utility manages more by the numbers than the man on the street. Price volatility would wreak havoc with FedEx or any large entity dependant on energy commodities. That would suggest pushing the tax upstream to producers and inporters.

Part of the "reduce demand" scenario ought to be quantity limits. Make it it explicit and part of the political process who gets what.

cfm in Gray, ME

The larger fuel users will almost definitely buy derivatives on the price of fuel. That is, they have a "hedged" stable price that they will pay. If the fuel price is higher than that, the derivative has positive value, and they use that value to pay the difference. If the fuel price is lower, the derivative has negative value and the savings they make on the fuel get eaten up paying for the derivative.

So large fuel users don't worry about volatility like individual end users. They do care about average costs though, naturally, and will respond to an increased tax.

The response can be unexpected though. I heard this story second hand... one of Australia's bigger fuel users has decided not to register their fuel usage (which would have earned them tax credits) because once you get above a million dollars per year in tax credits, you are automatically included in the greenhouse gas reduction program, and the company in question found being able to continue to pollute silently was more valuable to the company bottom line than millions of dollars in tax credits.

Gas prices in the U.K. and the U.S. are not comparable due to the taxes. Please tell Matt Simmons. Selling increased taxes on gas to Americans is made more difficult by the simplistic application of EROEI which does not recognize price as relevant.

Consequently when EROEI is calculated it is on a world basis which is probably correct for the world. But for Americans the cost of imported oil is its energy value which goes to the country that extracted it. From the American point of view imported oil EROEI is negative since the energy value is paid out at purchase. Refining, distribution and consumption are all energy users not producers. Domestic oil EROEI that is widely known and discussed on the TOD is probably correct since Americans collect both the energy gain of extraction and the economic gain of oil's use. Until this fallacy of logic in EROEI is corrected for imported oil it will be difficult to convince even TOD readers that increased taxes on oil are absolutely necessary.

Since imported oil is now the far larger share of crude consumption in the U.S. with only about 5 mbpd being domestic, it is probably safe to say that the overall EROEI for oil is negative i.e. less than one. How can this be? The large EROEI of domestic oil is offset by the payments for foreign oil which represent the energy that the foreign producer receives for extracting it. There is no free lunch and it is a logic error of the first order to count things twice. All Americans receive when purchasing foreign oil is oil's economic gain which then must be used to buy more energy in the form of imported oil.

The result is a constant drain on the economy which is currently made up by inflationary monetary policy to the point of causing global inflation since the dollar is international currency. Until EROEI is either abandoned or corrected to include price, there is no way for tax proponents to justify increases. People have to be shown that an oil tax increase results in real income increases due to reduced purchase of imported oil. Americans retaining a larger share of the economic gain of oil for themselves is the gain.

How can this be accomplished? Clearly the answer to match the increased taxes on oil with a reduction in other taxes or tax credits. This is rarely discussed but is quite obvious.

It seems like, regardless of the subject, you talk about EROEI. Reminds me of the saying,"when all you have is a hammer, everything looks like a nail".

I think a very clear message has to be given, i.e. we MUST decrease our consumption and explain why, Climate Catastrophe, Peak Oil and security of supply.

Next immediately ban the sale of all new cars (and 3 ton SUVs etc) that emit more than say 255g/km, impose an annual tax on the next "band" down e.g. 200 - 255 g/km of say USD 1,000 per year.

Have a rolling plan to reduce these bands each year, so in year 2 ban those over 200g/km with increasing tax on 150-200 g/km. Rinse and repeat until cured of the addiction.

Another long term plan to steadily increase the fuel price to European levels over say 4 years.

This will very clearly tell people that they need to drastically reduce FF adiction.

The tax income needs to be used to benefit people rather then just being swallowed in with all other taxes. Say to subsidise generation by renewables with a feed-in tariff.

from the Climate Code Red report which Jason Bradford remined us all to read the other day.

It's been discussed a bit before: http://theoildrum.com/node/3600

Sorry for the long extracts, but I think apropos. From Part 3

“We, the human species, are confronting a planetary emergency — a threat to the survival of our civilisation that is gathering ominous and destructive potential… the Earth has a fever.
And the fever is rising. The experts have told us it is not a passing affliction that will heal by itself. We asked for a second opinion. And a third. And a fourth. And the consistent conclusion, restated with increasing alarm, is that something basic is wrong. We are what is wrong, and we must make it right.”
– Al Gore, Nobel peace prize acceptance speech, 11 December 2007

“This is an emergency and for emergency situations we need emergency action”
– UN secretary-general Ban Ki-moon, 10 November 2007 (ABC, 2007a)

A lesson from the Apollo 13 response sandwiches this quote:

Today the message from spaceship Earth can only be: “People of the world, we have a problem”. Our planet’s health and capacity to function for the journey through time is now deeply imperilled. We stand on the edge of climate catastrophe. Like Apollo 13, we have only one option and that is, for the duration, to abandon our life-as-normal project and hit the emergency button, to plan with all our ingenuity how to survive and with unshakeable determination build a path for a return to a safeclimate Earth and to act with great speed and efficacy. Our life support systems — food, water, stable temperatures — are at risk, and our consumption of fossil fuels is completely unsustainable. Energy use must be cut. The voyage will be perilous and require intense and innovative team-work to find and mobilise technological and social answers to problems. Putting aside the “cost-too-much” mantras, our collective actions need to be driven instead by the imperative that “Failure is not an option!”

If we do not succeed, we lose not just a small spacecraft but most of life on this planet.

The first issue of the Hubbert Center Newsletter reprinted a gasoline tax article by James MacKenzie and Kathleen Courrier from the May 8 1996 LA Times. A dozen years later this controversy continues.


or http://hubbert.mines.edu

The assumptions in this article are faulty. It assumes people are either A) looking to move or B) looking to get another car, and hence higher prices will tilt the decision making.

But this is a very small subset of people. The vast majority of people will be doing neither of these. Fewer people are buying new cars, and fewer people are moving, due to the credit crunch for one thing.

So what does higher taxes on fuel do to the average person? Especially the average person who is grossly in debt? What are the economic consequences of people not only trying to pay down debt, but having to pay not only more for auto fuel but more for home heating fuel and more for food?

Simple, deeper recession. That is, imposing higher fuel taxes will drive up the cost of everything else, which will put more squeeze on the consumer and put the US deeper into recession.

Thus all higher taxes on fuel will do is speed up what higher oil prices will do. It won't stop over all world consumption of oil. It will just bring peak oil consequences here sooner.

I don't think I'm assuming that either of those things must be true, though I also disagree with you that it's faulty to assume that many people are either looking to move or looking to get another car.

First, the third group of people--into which almost all of us fall--is the group that can modify behavior to reduce gasoline demand. Carpool, combine trips, drive the more fuel efficient of your two(+) cars, take public transportation, telecommute part-time, etc. The vast majority of Americans have the ability to choose one or more of those, but generally choose not to. Those Americans that have not yet made one of these choices have, either consciously or subconsciously, decided that there is insufficient economic incentive to make them make the time, convenience, or status sacrifices that they would require. Increasing the gas tax can change that.

If gas taxes are directed into enhancing public transportation options (e.g. Alan Drake's rail electrification proposal), then they do not merely speed up the rate at which peak oil hits us, but rather smooth the transition to an economy less dependent on oil, and therefore reduce the degree to which peak oil does hit us.

Finally, there are thousands and thousands of new cars sold every day. While you may not personally be looking to buy a new car, literally thousands of Americans will do so today, and tomorrow, and the day after. If they choose a car that gets 10mpg better gas mileage because of an effective gas tax (as I argue here, PART of that effectiveness lies in increasing, not decreasing volatility of prices), then that will create a very real reduction in gasoline demand.

Cars on the road are getting older on average (and if you notice also people with minor fender-benders are not getting them fixed) means that people are holding on to their cars longer. Just about everyone has to finance a car to get a new one. The other day the TV was interviewing someone who gets a new car every 2-3 years. What they found was that the trade in value of the car was less than what they owed and the difference was tacked onto the new car. Thus the loan on the new car was more than what the new car was worth by several thousand dollars. Never again, they said, would they ever buy a new car (they simply could not afford it.) The next meltdown in loans is either going to be CC and/or car loans. Few will be able to buy new cars, watch the new car sales over the next 6 months or more.

As for fuel in general, if you put on a gas tax, companies will simply pass that along to consumers, and governments will have to raise taxes to cover their own higher fuel prices (unless lower levels of governments are exempt from fuel taxes. But here they are not.) Higher fuel taxes will mean more costs to farmers, more costs to truckers. They cannot cut back on their demand, so they pass the higher fuel taxes on in higher prices of products. Thus the higher taxes will eventually get downloaded onto to consumers. So consumers will get a double whammy due to higher fuel taxes.

Since the vast majority of workers cannot telecommute (hard to do so if you work in a factory or store or drive for a living), and the transit system sucks for the vast majority of people (takes too long and transfering to different routes), the car travel is their ONLY method to get to work. Example, the Toyotal plant near here has no housing around it at all. No public transit and workers come from many small towns around here. They have no choice but to drive.

So what does that mean then to these people? It means the only way they can afford higher fuel taxes, and the consequences passed down to them with higher goods prices, means they have to cut back on other things. That by definision is consumer demand, which makes up the vast majority of the economic activity in the US and Canada. Slumping consumer demand brings on recessions. Since the US is likely in one now, higher fuel taxes will just put the US into a deeper recession.

Everything is interlinked in the economy. You can't just twiddle a knob somewhere and expect it to not have ramifications elsewhere in the economy. This is exacty what the Fed is trying to do to stave off a banking collapse, which they must try and do. If they fail and the system collapses there will be millions out of their homes, millions more out of work looking for handouts, and millions more rioting in the streets, and quite likely thousands will fall through the ever widening cracks in the system and die. Higher fuel taxes will do the same thing.

Besides, any slack the US does in conserving oil is more oil China will buy and burn themselves.

Higher fuel taxes will mean more costs to farmers, more costs to truckers. They cannot cut back on their demand, so they pass the higher fuel taxes on in higher prices of products. Thus the higher taxes will eventually get downloaded onto to consumers. So consumers will get a double whammy due to higher fuel taxes.

Energy intensive foods will rise in price more than less intensive foods. Consumers will then shift their preferences towards less energy intensive ones based on the relative price changes. So, your "double whammy" could actually be a "double benefit": farmers will try to be more fuel efficient in their farming techniques and consumers will give the right buying signals to farmers so that the farmers will favor a less fuel intense basket of crops.

Everything is interlinked in the economy. You can't just twiddle a knob somewhere and expect it to not have ramifications elsewhere in the economy.

You are correct on that score. But that's exactly why we need an across-the-board fossil fuel tax that affects all areas of the economy. If you just put gas-guzzler taxes on cars then people buy light-trucks instead (witness the "muscle car" Dodge Magnum, which is a light truck and pays no guzzler tax). If you mandate higher mileage vehicles generally, then people will drive more. More effective insulation means people run the heat hotter. More efficient air conditioners mean more people move to Florida and Arizona.

You realize all this does is buy a little, very little, bit of time. It is no silver bullet to stave off the inevitable.


I think that if you increase gas-tax, people drive less.

I can understand your reasoning, but I think it is irrelevant.

Respectfully, I think you missed my point (this is quite likely my fault for poor communication):

Increasing gas-tax might not make people drive less: a gas tax (as currently exists in Europe) that decreases the consumer's exposure to volatility from oil-price increases might actually make people less concerned about making choices today that protect them from future increases in oil prices. Conversely, a gas-tax that increases volatility exposure to the consumer may actually result in greater demand destruction for the same amount of tax-revenue collected.

So, while I agree that generally more gas-tax means gas consumption (though we don't have a great understanding of the relationship here due to challenging elasticity questions), I'm only trying to argue here that IF we're going to try to use gas tax to decrease demand, we should try to use the most effective type of gas tax, and that this is one that increases the consumer's exposure to volatility.

Fuel taxes won't work. It won't drop demand enough as there is a point where you can only cut back so much, the rest of the consumption being essential. And as long as more people enter the system (be it immigration or new people driving) then any reduction in per person consumption will only be swamped by new people.

If you want to conserve fuel the only way you are going to do that is by:

1) ration fuel (not through cost but by allocation), you only get what you need to work
2) no new vehicles allowed on the roads. That is, no new licences for drivers. The beginning of the end of personal cars. This will force new people to live closer to work and take transit.

None of those are politically viable, and neither is higher fuel taxes. People who can afford to pay will, and be happy those that cannot pay (the poor working class) will be off "their" roads.

Fuel taxes DO work... the only question is how high the tax has to be. A $1000/gallon tax would be remarkably effective at reducing demand, don't you think? And you can make this "equitable" (whatever the contemporary political definition of that is) by the method mentioned above--offer some kind of rebate equivalent to tax on a "reasonable" use.

It doesn't matter whether you ration, ban cars, or use taxes, we're still discussing how to divide up a limited and (soon) decreasing supply of oil. You can argue that rationing is a better way to do it than taxation, on the theory that it ensures the "working class" gets their gas. Or you can argue that rationing prevents the economy from allocating supply to the point of highest value (e.g. people who really "need" to drive more than their ration can't, and people who don't really need to drive, but have the ration available, do). That's the classic question of politics--how to divide a finite set of resources among an infinite set of demands. Suggesting that a ration be set at what people "need" to work only guarantees its failure--who decides "need"? how does this transition those in jobs that won't exist as oil becomes more scarce, like long-haul truckers, who "need" a lot of gas? Who decides how much of a "commute ration" is reasonable? Seems like a very messy solution.

Fuel taxes will only hurt the poor and working class. It won't drop demand as more people enter the system. It won't curb demand in the long haul. All you will be doing is make poor people poorer. And you will destroy jobs too. Imagine half the cars not sold as people can't afford to drive them. All the millions of workers, union job workers, who would loose their jobs. Millions would then drop out of the work force, loosing their homes, defaulting on loans. Deepen the recession.

What it will do is make the wealthy very happy as they will no longer have to wait on clogged roads with the rest of the "rif-raf". Wealthy people will just drive as they do now.

You can choose to sacrifice now, or sacrifice much more later. These millions of union jobs making cars are going away. They *could* transition to making renewable energy systems and building a post-oil economy *if* we provide necessary incentives for that, such as through a gas tax that will simultaneously reduce our dependence on gasoline by forcing us to make the painful yet necessary economic choices to re-focus our lives away from gasoline consumption. Or, we could just ration gas so that these working class folk continue to drive their F-150s to the factory from their suburban home, until that factory isn't around any more, and until they can't afford to drive because the underlying cost of oil has risen too high. Pick your poison--I'll take the one that, while painful, simultaneously provides the possibility of transition. I don't think this is especially likely to happen, but I prefer "not especially likely" to giving up.

Fuel taxes will only hurt the poor and working class. It won't drop demand as more people enter the system. It won't curb demand in the long haul. All you will be doing is make poor people poorer.

It's funny to see a doomer be so wrong on all points.

  1. Price increases caused US gasoline consumption to fall some 11% from 1978 to 1982, and it only rebounded when the nominal price fell again.
  2. Growth of new people is from immigration; if prices are high enough, they'll stop coming here.
  3. Poor people are poorer in the cheap-fuel USA than in expensive-fuel Europe.

When you're done shooting, I'll give you a lift to the hospital to have the remains of your foot patched up.

Are insults common here when one disagrees with someone?

We are not in 1978 any more. This is a whole new world.

1) You missed my meaning, maybe I wasn't clear. I meant GLOBALLY fuels will not be cut back as prices go higher as demand will continue to consume all there is available world wide. What ever the US does not consume due to a recession countries like China will just take up the slack and consume what the US does not. Thought I specifically said that. Thus prices for oil will continue to rise in spite of a US recession, in spite of gas taxes in an attempt to curb consumption. In 4-6 years China will consume the same amount of oil that the US currently does.

2) You're sure of that? You know for a fact that will happen? You have a magic crystal ball that shows you that Mexican's will stop crossing the US boarder, that Canada will stop bringing in 250,000+ per years of immigrants? Dream on. We have radical left wing people here who claim we need to bring in MILLIONS more as climate change refugees.

3) Apples and oranges. You cannot make the comparison with out qualifying the differences. Europe can tollerate a bit higher fuel prices than the US because of their higher density of people. The US and Canada has a much more wide range of people that need more fuels to move food and goods. (though the situation in Europe is deteriorating fast)

It's too simplistic to just say "raise fuel taxes and consumption will just go down." The Law of Unintentional Consequences rules supreme in economics. Chaos controls the system. You can in no way predict what hundreds of millions of people will individually do when pressed. One of the things you missed stating during the 78 crisis was that people were shot at lineups to get gasoline.

Are insults common here when one disagrees with someone?

No, they are common when someone is continually obtuse, dogmatic, and incapable of a reasoned argument. Having a clear, and wrong, political axe to grind doesn't help your case Mr. Global Warming is a Conspiracy.

We are not in 1978 any more. This is a whole new world.



AWESOME! And when geological peak hits hard, China will starve and the US will be well positioned with lower fuel infrastructure. Awesomeness... we are willed with win! Just because my neighbor is doing something stupid doesn't mean I should too. I have a fixed rate mortgage and no sympathy for people getting foreclosed on for a reason.


I see in your universe the law of supply and demand have been rescinded. Somehow this massive recession you claim higher fuel taxes will cause WON'T slow down immigration. Gotta wonder where you took your Macro economics class from.

2.5)We have radical left wing people here who claim we need to bring in MILLIONS more as climate change refugees.

Hmm..... I'm a member of the "Left Wing Radical Group" in the U.S.A. I don't hear that here. Maybe the "Canadian Left Wing Radicals" are different.... maybe I missed a memo. I find the people who want immigrants the most are the Right Wing Corporatists. (George W.) They want slave cheap labor.

We will have plenty of our own refugees too worry about when NYC, New Orleans, and Miami are underwater. There should be a law that anyone who denies climate change has to buy a waterfront property and is not allowed to move out if in fact the water does rise..... but this topic is about Gas taxes, not your favorite axe.


Europe is different. Clearly we couldn't possibly learn ANYTHING from those worthless smelly Euro-trash bastards. Nope, not a thing.

It's too simplistic to just say "raise fuel taxes and consumption will just go down."

Yeah, about the only thing every single economic theory agrees on is clearly wrong, BECAUSE THIS TIME ITS DIFFERENT!!!!!!

You are picking and choosing what part of the free market you want to believe in? There is a word for that..... It is wrong. As in, you are wrong. You don't understand how to analyze data in a fair manner, you don't understand how to evaluate theory's in a fair manner, in fact.... your education has given you a lot of facts and no useful way to tie them all into a logical coherent whole. I hope it was free cause that is the only way you got what you paid for.

All of that and you can't even keep from expressing yourself in either contradictions or tautologies:

I meant GLOBALLY fuels will not be cut back as prices go higher as demand will continue to consume all there is available world wide. What ever the US does not consume due to a recession countries like China will just take up the slack and consume what the US does not.

Well, duh.  Did you think there was some incentive for oil producers to pump oil they could not sell, and just leave it in tanks or in pools on the ground?  Demand will consume "all that is available" because there is some price at which producers will shut down on the low end, and consumers will close up at the high end (can't consume more than is available by definition)!

When your output is falsehoods and tautologies, you can expect people to point at you and laugh.  Ha ha!

"Are insults common here when one disagrees with someone?"

You've raised the ire of the self appointed TOD pro-tax Flagellants, jr.
They want you punished for using oil.
Mention an alternative to their pet theories but don't expect a rational response.
We had a chance to to secure our energy future but elected Reagan instead.

Fuel taxes will only hurt the poor and working class.

Err, "the poor" lack machines to put fuel into.

Cars cost FAR more than the gas, what with the insurance and other costs.

Rationing need not be implemented at the micro level but could be done quite effectively at the import terminal, particularly in the United States. I realise that politically this would be difficult but it is proabably easier to justify on trade imbalance terms than peak oil or climate change terms. The basic idea is that the US government sets the import quota each month and the free market allocates the available supply within the US. The price volatility would be there and behaviour would modify over time as people adjusted to create certainty in their lives.

Thsi may have an effect on international oil prices as well. The monthly quota announcement would be eagerly anticipated by traders and this would setup another level of volatility which actually be out of sync with gas prices at the pump. Exporting nations would hate it and may in fact reduce supply in anticipation of the lowest possible US quota.

This forced reduction in supply to the US consumer effectively delivers peak oil to the US earlier than the rest of the world. As teh US is the market that will require the biggest adjustment, it is probably wise to get it started by whatever means you need to, artificially induced or not. The advantage of going early is that there is at least the ability to ramp up the quota and suck in more oil for nation building programs once the need, urgency and behaviour modification have taken root in the mindset of the US public.

Fuel taxes DO work. European cars get nearly double the mileage US cars do. I recognise that driving patterns are different, but that is partly the point. However the Europeans have (probably unwittingly) been preparing for this point for several years. Their fleet is smaller and something like half diesel. The US by comparison has literally driven up a blind alley. SUV's and very little diesel will take years to unravel (and so it won't happen).

The situation with diesel is interesting though. It is the vital fuel. It is very close to jet fuel and probably is intwerchangeable to a significant degree at the production/refinery level. When shortages do begin to become painful diesel is going to be allocated first to "vital" activities such as military (the US military is standardizing on JP-8), farming and social services. It will be interesting to watch what happens as this unravels, especially in Europe. Will the gasoline fleet or the diesel fleet be stranded first?


I'm a bit late with my reaction, sorry about that.

I very well understand you point. You say: Because of volatility, people get confronted sometimes suddenly with high bills. Maybe they get smart and switch to small cars. People don't like surprises.

How about: Let's raise tax and people are always confronted with high prices. You can be pretty sure they will buy a small car.

Europeans use about half the gas Americans use, because gas is about 2.5 times more expensive. That would suggest a long term elasticity of around 0.4. Short term is worse (around 0.1), because people cannot just sell their house, take another job or dump their car.

Your argument that the volatility has an impact on vehicle choice etc is a clever one, but I would think it is a second order effect.

There is no question about how people react to high gas tax. About 120m Japanese and about 350m Europeans react the same way. The 0.4 elasticity seems like some kind of a nature-constant in economics, usually the elasticity is around there. Except of coarse for some special goods like drugs or designer handbags etc, but oil is definitely not in there.

Just my 2 c's, ignore it if it makes you laugh out loud. ;-)

I think it's a moot point now. As Al Gore said last night on Futurama in the year 2012, "That hundred dollars would have bought a gallon of gas."

I disagree that it's a moot point--in fact, I suggest the opposite: The faster that oil and gas prices rise due to peak oil (or global demand increase), the more time-critical it is that we apply an increased gas tax that A) effectively reduces demand, and B) directs that revenue specifically toward easing the transition to a world with lower daily oil production.

An apparent Peak Oil joke made by Al Gore playing himself.

The movie's carbon neutral according to Fox.

Yow! As in, "we can't get a gas tax with the carrot and stick approach, so let's just try a really big stick!" Increased volatility might reduce consumption, but it will absolutely never sell unless you can formulate some kind of lottery-like system that convinces people that they'll win more often than they lose. Of course, if they're winning more often than losing, you probably won't get your desired end result. But people who pay the lottery lose almost all of the time, but they keep playing anyway.

I think we'd be better off learning from the Republican playbook. Sell people a short-term gain with a long-term loss, but make the long-term loss absolutely crystal clear so people can plan for it. A few years ago, when TOD was on a "let's sell increased gas taxes" kick, I suggested an alternative. Instead of an all-stick gas tax approach, sell them a system that decreases volatility, but increases costs over time. Since costs are going to increase anyway, I proposed we just sell the system to decrease volatility, but I think it would reduce consumption more if we explicitly say costs will increase.

So, the country creates a liquid-fuel price-smoothing system. Here's how it would work. We set a price band that increases each year. When prices fall below that band, we increase taxes to keep prices in the band. When prices rise above the band, we decrease taxes to keep prices in the band. Most of the taxes build in a fund that must break even every other year on non-election years. At no point can the fund be negative. The band gets reset based on prices and fund balance each year, but it also increases by at least five percent per year. Any excesses at the rebalancing go to paying social security/medicare deficits.

So here's the carrot: prices aren't going to rise so high, so fast that they break the bank. The stick is that prices are guaranteed to rise, but at least you have some idea about the schedule. You can make longer-term plans that way. Market prices are free to float as they did before, but with some stabilizers built in.

Even that has *zero* chance of happening, because everyone can see that as soon as the price falls, they'll be paying higher taxes. Not here! It isn't pessimistic to say that nothing is going to happen in the US, it's simple realism. The only change that people would go for is lower prices. That's not going to happen. If we get any tax increases, it will be because the roads are crumbling.

I agree that this plan has little chance of working in America (well, federally, might work in a few states). I think it is quite practicable in Europe, where they're already using high gas taxes, just in a relatively ineffective manner. That said, I think the decrease volatility in exchange for long-term increase is exactly the wrong approach, for precisely the reasons that I outline in my article: it will be less effective at decreasing consumption for every dollar of tax revenue raised.

I also worry about it from a moral hazard point of view: if we keep telling people that they don't need to sacrifice now, that there will be plenty of growth (and future generations) to sacrifice later, that's exactly what we'll get. And if we don't sacrifice now (or at least SOON), we're screwed (IMO), for lack of a better phrase.

Of course, almost no one believes that prices will *really* be rising over the long term. If you told the average American that gas prices will be $5 a gallon next year, they'd snicker that it wouldn't surprise them, but in the next breath they would say you're nuts. In the third breath they would swear at you under said breath for suggesting such a thing. However, they don't really believe prices will get that high and aren't doing anything to prepare for it.

I don't think it makes much difference whether prices get to $5 a gallon due to volatility or steady price increases, except that a) volatility is likely to get there faster but only hold there briefly, b) slow and steady will take longer to get there but will stay there, and c) if people *know without a doubt* that $5 a gallon is coming, they can plan ahead. To get that plan ahead value, you'd somehow have to guarantee from very reputable sources that the volatility will cause prices to rise to $5 a gallon in the next year. Good luck with that. God Himself couldn't convince most people of that. And even $5 a gallon isn't going to shake things up enough.

To pick up on Sharon's point, Harvard economist Martin Feldstein has called for years for tradeable permits to deal with fuel security issues. He calls it a system of "tradeable Oil Conservation Vouchers". That's essentially a market-based rationing system. Everyone gets a certain amount of rights to buy fuel. If you exceed your credits, you have to buy them on the open market from people who have used less than their allocation. As he points out, this could be implemented quickly through vouchers distributed by the states. I think that is actually a workable and likely solution if the current market-based pricing becomes unpalatable.

Speaking for the US, we cannot afford to place an increased gasoline tax on our already strained economy. Also, any member of congress who votes for such a tax is guaranteed to be out on their ear at the next election.

A less economically damaging way to constrain consumption is to announce and then develop a federal emergency gas rationing data base. During an oil shortage, this data base would be used in conjunction with credit and debit cards to limit the amount of gasoline used by each driver per month.

Just the announcement of the development of such a data base would deter the purchase of inefficient cars because the government would be tacitly recognizing peak oil and drivers would not wish to take the risk of not having enough fuel to get to work.

Once such a data base was created, it would also serve as a consumption weapon which could be used to deter production restrictions.

In a true oil shortage, the implementation of rationing would keep the price of oil from spiking and causing severe economic damage.

This strategy would increase the percentage of fuel efficient cars in the fleet without economic damage or restricting consumer choice.

Agreed, a rationing system would reduce volatility, and despite Jeff's (interesting) point that increased volatility through taxation may serve to reduce demand, with a rationing system demand is simply reduced by the cap (whether imposed by supply limits or by policy). It really does seem a much better bet than taxation. Have you examined the TEQs rationing system yet? This allows us to guarantee our emissions budget is met as well as addressing peak oil.

You're on the right track, Jeff.

The problem with taxes (besides the obvious, ie. I've gotta pay them :) ) is that they mask price signals. In a high-tax environment diesel looks better than gasoline because of the added fuel mileage. In a low-tax environment people look at the fact that diesel increases in price faster than gasoline as the price of oil goes up, and opt for the product that's more prolific in a barrel of oil.

I think the tax system is, also, a major problem for biofuels in Europe (in addition to the fact that all good oilseed crops are grown in the Tropics.) In the U.S. e85, with current engines, is basically a break-even proposition in most places. In Europe, e85, with current engine technology which gives much inferior fuel mileage, is a bad deal. The slightly lower cost, percentage-wise, doesn't even come close to making up for the lower fuel economy.

a gas tax? the current gas prices ARE a gas tax.

Gas prices are still incredibly cheap when you consider how much work you get out of a gallon of gas. At $3.51 per gallon (what I paid this weekend out in the sticks), this works out to about $.22 per cup.

I certainly can't get a cup of coffee for this price. A 12-ounce cup at Starbuck's runs $1.50, quite a markup from the $.33 it costs for the equivalent amount of gasoline. God forbid, I decide to drink a tall latte. It would cost me more than 10 times the price of a similar amount of gas.

Since I drink so much coffee, I tend to get dehydrated. If I stop and get a bottle of water at a convenience store, the price will be similar to the price of a cup of coffee, but maybe a little cheaper. I think $1.50 for 16 ounces is realistic. This water costs me $.75 a cup, three times what that amount of gasoline would set me back. Voss bottled water from Norway cost $2.99 per bottle. You would think at that price you would receive at least on liter of water, but no, it actually only 800 milliliters. An equal amount of gasoline only runs you $.73.

If my theoretical vehicle gets 16 MPG, this cup of gasoline will propel myself, a couple or few friends and a bunch of our stuff 1 mile for less than a quarter. What if I had to pay someone to push my vehicle and all of its contents for this mile? Think they'd do it for $.22? Not freakin' likely.

Factor in the external costs of cheap gasoline; depletion of a non-renewable resource, pollution which affects health care costs and the environment, loss of productive farm and/or natural habitat land to urban sprawl, anthropogenic global warming, and having a military budget larger than every other country in the world combined and $3.51 a gallon looks like a real bargain to me.

Sounds like you'd be better off drinking the Gasoline, I wonder why you didn't.
I'm also unfamiliar with "the Cup" as a measure of energy density, I'm more familiar with the Kilowatt-hour
of which I'm told there are about 35 in a gallon(US) of gasoline, so at $3.51 this is about $0.1 per kWh, I could be wrong but I don't regards this as very cheap, that's just from looking at my electricity bill. In other words apples are not like oranges.
I think that the simplest why to arrive at the "right" usage level would be if the hidden costs were added to the pump price and the true cost was paid by the end user, this is never going to happen in the current political environment

The big problem I see with a gas tax increase is that it makes the government dependent on the new source of income. The government then has an incentive to get as much oil sold as possible. The government then becomes a player on the wrong side of the table. This happens whether the tax is based on gallons sold or the price of gasoline sold.

I might point out, too, that if the tax is based on the price of gasoline sold, the government has an incentive to maximize the price of gasoiline, so as to maximize the tax they collect. I expect drivers would not be happy with this situation.


maybe the best idea is to do What They Did. ie. Tax Credits for Alternatives.

Who'd a thunk it. :)

Tax credits for alternatives... hmmm, that's given us ethanol, E85 Suburbans, and photovoltaics that aren't economically viable without the tax credits. And it makes those alternatives dependent on continuation of the tax credits for fiscal viability--look at what's happening in wind. No, I don't think tax credits are the answer, but that isn't really what this post is about. As I said, IF we're going to have a gas tax (as we already do, and as Europe already does), then how do we make it cause the most demand reduction...

Sorry, I assumed it was about Tax Policy.

But, while I'm here, let me say this: Ethanol, actually, is financially viable if it's burned in a ten, or twenty, percent mixture. E85 is kind of a close call, at present; but, as the price of oil increases, and production costs of ethanol decrease, it should be pretty much a slam dunk in a year, or two.

The big problem I see with a gas tax increase is that it makes the government dependent on the new source of income.

It only affects government income if it's allowed to keep the money.  Pickens' proposal includes a 100% rebate of fuel taxes via reduced employment and other taxes, so net government revenue doesn't change (at the first order).

I might point out, too, that if the tax is based on the price of gasoline sold, the government has an incentive to maximize the price of gasoiline, so as to maximize the tax they collect.

At some price well short of $100/gallon, consumption of gasoline would fall to a small fraction of today's level.  The incentive to substitute other things for oil-burning transportation would justify all kinds of measures we don't see today.  Even if the economy kept going, the revenue stream wouldn't; it would decay to a much lower level.

This is academic anyway.  Taxes of more than a few dollars a gallon couldn't be sold even as strategic sacrifices, and the actions would be reversed after the next election.

Taxes of more than a few dollars a gallon couldn't be sold even as strategic sacrifices, and the actions would be reversed after the next election.

So why keep proposing it?
TOD should be advising its readership on how to prepare for impending fuel shortages and certain rationing instead of wasting our time like this.

So why keep proposing it?

Because a few dollars a gallon is all it would take.  The incremental cost of a Prius-type hybrid (~$2000) is profitable when gas hits about $3/gallon.  $6/gallon fuel would justify PHEVs and a host of other measures.  More to the point, a tax shift away from income toward fuel wouldn't leave any fuel-saving measures unrewarded.  Rationing would miss plenty.

TOD should be advising its readership on how to prepare for impending fuel shortagesand certain rationing

You miss the point.  In a free market, there is no "shortage" as such; price rises until demand drops to meet supply.  The point of a tax is to depress demand without letting the oil producers enjoy the revenues; it transfers the benefits from them to us.  That gets rid of the whole rationale for rationing.  To the extent that the tax is offset by elimination of taxes on employment, it is progressive and would actually benefit many low-income people.  People burning lots of fuel to make little income should probably find another line of work anyway.

Because a few dollars a gallon is all it would take.

Fuel prices are rising uncontrollably as things are now.

In a free market, there is no "shortage" as such; price rises until demand drops to meet supply.

I'll treat this like the blanket statement it is.
Recent Fed actions invalidate any statements that the U.S. economy operates with a "free market", if it ever was.
And in the larger sense, shortages exist where there is declining availability of supply. Market forces may have nothing to do with a given scenario.

Fuel prices are rising uncontrollably as things are now.

And the consumer response is lagging behind.  The point of the tax is that consumer response would be ahead.

Recent Fed actions...

have nothing to do with the subject of this discussion.  They're one of the causes of the fuel price increases (which caught consumers napping).

If you don't have any relevant response, just say so (or say nothing).  When someone like T. Boone Pickens promotes the redistribution of income toward the poor via a change in tax policy, one would think that you'd be in favor.  Instead, it looks like you reflexively oppose things based on labels.  That knee jerk much?

"Recent Fed actions..."

have nothing to do with the subject of this discussion.

then in the very next sentence...

They're one of the causes of the fuel price increases (which caught consumers napping).

If this type of convolution is what passes for thought in that brain of yours, no wonder a gas tax makes perfect sense to you.

IF the goal of a gasoline tax is to cause consumers to make choices that reduce gasoline demand, then that tax should operate to increase volatility.

No - if prices are volatile, ppl just bitch and swear, are angry, develop wild theories, and don’t realize how much they spend. When prices are more or less stable, eg. rise slowly as in the EU (see sinking dollar, gvmt. measures, etc.) people can get a handle on what is going on, and realize that next year, say, they may be paying double for heating / commuting, etc. Economic pundits have vaguely stable base to figure things out and make predictions, publish articles, etc.

That in Germany, Switzerland, and Sweden, ppl are (for ex.) buying bigger, heavier, thus less efficient cars, and in fact consuming more gas (though stats may vary, or not show it, or that may be compensated for by other factors, etc.) is not a counter argument. With volatile prices consumption would possibly be even higher.

The best way to tax is a) tax heavily, b) smoothly and predictably, c) bearably. All those words with inverted commas hovering around them.

Volatility will also augment problems and strife. The truck company goes bust; Marcia can’t make it to work is fired; family Smith with long commutes is suddenly and unpredictably thrown into the street; the airfield closes down, couldn’t collect on the planes; car manufacturers can’t sell because ppl can’t figure the operating costs; Big US Car Co. finally bites the dust, etc.

so Yes - creating confusion, disarray, uncertainty, will make many with low or medium budgets back off (consume less), provided that is a possibility. For many, it will not be so, and poor food (etc.) will compensate for the pump price. The rich of course will not care, and may even welcome the extra status of getting some plebs off the roads, bragging about their capacity to pay. Parts of the economy would be destroyed (see the truck co.) maybe that is positive - most would say not.

"With volatile prices consumption would possibly be even higher." This is where everything you say just breaks down. I'm not arguing that volatility is enjoyable, but that, between volatility and stability, volatility will maximize demand reduction. Taxes designed to reduce consumption of the taxed good have to hurt to work. That is, by definition, NOT enjoyable. As you admit in your last paragraph, increased volatility via taxation would probably work, you just wouldn't like it. Neither would I, but I like it better than what I see as the long-term alternatives...

Nothing can be enjoyable here, measures can only be, at best, effective and as painless as possible, for all - society, the economy, the poor, etc. With what results is very hard to judge - depending on the measures, arrangements, etc.

You may be right, as I said.

Nevertheless, introducing more uncertainty and confusion will most likely lead to aggressive and wild behavior, more isolation, more scamming or profiteering, and less social cohesion, rational plans, solidarity, best hopes and action for the future, etc.

The invisible hand will fix nothing, as it is a myth, and isn’t invisible - monopolies, cartels, protectionist laws, the powerful twisting arms, military, corporate might, geo-politics, crackpot state regs, subisidies, etc. etc.

How ppl react to wildly gyriating prices hasn't been studied afaik.

It is possible to reduce fossil fuel use and still have a healthy growing economy. We can do that by making a tax trade.

A good economy will need energy, but it also has to have property, labor and will have income. But we tax property, income and sales to pay for government services like education, public safety and all the other things that go up to making an economy and society.

Lets reduce taxes on property, income and sales; then have a tax on fossil fuels to make up for the reductions. Our economy isn’t going to run less well because we’re taxing fossil fuel/carbon fuels instead of property taxes, just run differently. Less costs on property and more costs on carbon fuels.

The land and buildings will be here 50 years, 100 years, 500 years and land even a million years from now, but the fossil fuel will be long gone. Doesn’t it make sense to tax the fossil fuels, to keep that around longer for future generations to also use, than to tax property which will be around for future generations to use whether it’s taxed or not?

Reduce the property taxes on every business for every employee by 1000 dollars and make that up with a fossil fuel tax. Reduce every homes property tax by 2000 dollars and make that up with a fossil fuel tax.

We could also shift most of those fossil fuel/carbon fuel taxes to consumption taxes and not production taxes. Any industry that has to compete on the world market would be taxed at a lower fossil fuel/carbon fuel production taxes rate that the world might agree to. We sure don’t need to tax and increase costs for companies that compete with China and India. But by taxing fossil fuel/carbon fuel as personal consumption taxes at a higher reate we would bypass that. Retail and restaurants could pay the fossil fuel/carbon fuel consumption tax rates.

From 2002, sales taxes are 3.2 percent of GNP, property taxes are 2.6 percent of GNP and income taxes are 9.9 percent of GNP. If we reduced each of these by 1 percent and increased fossil fuel/carbon fuels taxes by 3 percent, we would bring in just as much money to pay for government and not harm the over all economy. In a 14 trillion dollar economy, 3 percent of GNP would be about 400 billion dollars to trade from property, sales and income taxes to fossil fuel/carbon fuels taxes. (GNP rates U.S. economy)

Most of those tax reductions could go to lower income groups to decrease the resistance because energy taxes are a larger part of a lower income persons spending that higher income person.

Shuffling deck chairs on the Titanic.

As long as energy is needed in a growing economy, growing because more people are entering the system, you will not see an over all drop in demand of fuels. It would only be a small dip at first then once we are at the bear minimum of fuel usage required to run the economy then usage will rise again. Until the supply of fuel slows, then all hell is going to break loose.

Most people don't seem to understand that our Great North American Society was built around the car.
Any impingement on our ability to motor about is going to cause upheaval at every level.
Our system will have to collapse before any meaningful change can be enacted.
(pause, new idea takes hold) Unless you protaxers are really trying to bring about the collapse! Sheesh, I thought I was a doomer!

Most people don't seem to understand that our Great North American Society was built around the car.

Yeah, The USA did nothing useful for the world until sometime after 1945 when everyone owned a car.

Clearly we were a huddled mass of scum and villainy in 1890.

"Yeah, The USA did nothing useful for the world until sometime after 1945 when everyone owned a car."

Yeah we did!
We created surburbia, the interstate highway system, gridlock and freeways galore.
Like it or not this is what we changed into and it's how our country works today.
Got any other dumb ass statements?

Your explanation of the causal mechanism of greater volatility on human behavior pretty much reads like a "just so" story. Using your logic, why shouldn't the average consumer place a bet on gas getting a lot cheaper, and therefore choosing to waste more energy rather than conserve? Volatility goes both ways after all, higher price, more tax, lower price, less tax.

For the very reason that I explained above: Volatility can reduce price a maximum of 100%, and can increase price a maximum of infinity %. For Americans, gas is currently about $3/gallon. It can go down by a factor of 4 and cost $.75/gallon, or it could go up by a factor of 4 and cost $12.00/gallon. The same factor change is much more damaging on the up side than on the down side, and for that reason volatility is more likely to cause demand reduction rather than demand increase.

Yep, but as you say, you're assuming rational humans. I'm afraid I subscribe more to Herb Simon's "bounded rationality" hypothesis (see Simon 1956 for example). A hypothesis that actually has empirical evidence to back it up (see newish work by R. Goldstone for example), as compared to the "rational" assumption which has absolutely zero empirical evidence behind it. Thinking in terms of bounded rationality, I might argue that, as a consumer I might consider $0.75 to be "dirt cheap," or equivalent to paying "nothing" for gas, while $12 is "prohibitively expensive." I very much doubt the average consumer is going to going to rationally evaluate how much worse $12 is over $3 as compared to how much better $0.75 is over $3. Don't buy it, sorry.

An effective gas tax would be a purposeful gas tax. In other words, we would set a target for gasoline consumption and adjust the tax to meet that target.

BTW, higher gas prices are nothing like a gas tax. HIgher prices represent money leaving the country into the hands of foreign producers, in the case of imported oil. A tax represents money that goes into the coffers of the nation and gets spent domestically.

One reason that a gas tax would be beneficial is that it would discourage people from buying gasoline and stem the loss of money to imports.

IF the goal of a gasoline tax is to cause consumers to make choices that reduce gasoline demand, then that tax should operate to increase volatility.

I don't think making consumers reduce demand is a valid basis to tax something, and I have little belief that it works when you do do it. Punative taxes just cause disgrunted taxpayers.

I like the US model of gas taxes. Though they vary somewhat from state to state, gas taxes are pretty much earmarked for building roads. Some states extend that to paying for Highway Patrol officers, or subsidizing public transportation, but not much more.

I, too, have little belief that it works when the tax consequence is substantively irrelevant (e.g. non-painful). Put a $1000/gallon tax on gasoline and see how fast demand drops. Do you still think that it doesn't work, or is it actually that you don't think gas taxes work to reduce demand at the level of current taxation??

Now, suggesting that you think it's an invalid basis for taxation is a matter of personal opinion. There are many in America who think that taxation in general is invalid. However, you suggest that you do like taxation to pay for roads and other transportation infrastructure. How about expanding that beyond just highway patrol officers to funding the transition to a post-oil economy? That would suck up just about any level of gas tax, and would, at least in my opinion, be a very valid basis for taxation...

You may be right that a more volatile tax will reduce demand more, but I don’t think that should be the objective. The objective should be to reduce demand in a way that allows the economy to make an orderly transition away from oil. You could reduce demand further by saying that the tax will be anywhere from 100% to 1000%, randomly picked once per week. This would reduce demand, but kill the economy.

That is why I think you need to have a tax that starts low, gradually increasing over time. This allows people to plan for the future and make rational decisions, which will lead to more economic and political stability.

I propose: $1pb in 2009; $3 pb 2010; $5pb 2011 etc. Once you reached a level of $33pb in 2025, you could increase the tax by 3% per year. I know that no politician has the oil cans to implement such a tax, but I think this is how you could steer the economy off oil without causing riots and panic.

You cannot steer the economy off oil. A modern society needs high levels of fuel. If not oil then it has to come from somewhere else. And that somewhere else, all the alternatives, cannot be scaled up or scaled up in time. The cliff is coming closer and you are all trying to find ways to avoid it, or slow down before you get to it. It aint going to happen. We will go off the cliff at some point. So we have 2 choices. Slow the rate of speed to the cliff, and with pain go over the edge. Or we can just leave things as is and let us go over the cliff.

It's like having terminal cancer. You can live a few months more in pain and agony while on chemo, or say "fuck that", the end is coming anyway and I'm going to party on until it comes sooner. Me, I'd rather have fun and get it over with when it comes. Why prolong the suffering?

Leave the taxes alone and let people enjoy this form of society a little longer while they can before the next phase of civilization, or what ever it becomes, hits. (and yes I'm reading "World Made By Hand")

"In the end, we are all dead."

You epitomize the self-fulfilling doom scenario I wrote about 3 years ago.  But since you say it's all going to be the same anyway, you have no reason to post here.  You might as well be out enjoying yourself in the time you have left.

Since you are railing at us instead of enjoying yourself, it appears that you don't believe what you say.  Instead, you fear that you are wrong, and hope to persuade others to make you right... against their own interests.

I believe our response should be a heartfelt "F--- YOU!"


Why is it you people have to insult us who disagree with you? Is it some knee jerk reaction? Is there some reason you cannot tolerate other's opinions and have a meaningful discussion?


Why is it you people have to insult us who disagree with you? Is it some knee jerk reaction? Is there some reason you cannot tolerate other's opinions and have a meaningful discussion?

1) He is insulting you because you are wasting our time here. He explained quite well why you have no business posting here. Go buy an SUV and party on dude.

2) It is you who cannot have a meaningful discussion. The evidence is in every drumbeat.


Why is it you people have to insult us who disagree with you?

Disagreement is one thing. Showing proof is another.

Now go forth and show actual data. VS your normal 'appeal to authority' arguments.

Very interesting, and exposing. You demand proof from me, for my political/economic opinions, yet you, none of you, demand the same from your own socialist buddies here. What I clearly see is that the TOD has most definitely been hijacked by leftists/communist/socialists who are hypocritical, flagrantly insulting to anyone with a differing opinion, and above all you are salivating at the chance of finally seeing capitalism collapse.

You should be ashamed of yourselves for your gross indecent and intolerant bigotry towards others. You people are politically racist thugs who, if given the opportunity, would execute, literally, any people who disagrees with your sacred position. You people are the VERY people who we fought wars against to preserve our democracy.

If you don't like it in the US or any of our free market democratic society then go move to Cuba or North Korea and rid us of your ignorance and intolerance, and above all, your grossly dangerous attitude.

Let me quote you back to you:

You cannot steer the economy off oil. A modern society needs high levels of fuel.

You offered no support for these claims.  You simply ignored the examples on this site of modern societies using far less oil than the USA.  You ignored all the news of technologies which slash the need for oil.

You were challenged to support your assertion.  You failed.  Your failure reflects on nobody but yourself.

What I clearly see is that the TOD has most definitely been hijacked by leftists/communist/socialists who are hypocritical, flagrantly insulting to anyone with a differing opinion, and above all you are salivating at the chance of finally seeing capitalism collapse.

One of the hallmarks of the ideologue is projection.  It was you who said that capitalism was going to collapse no matter what, and I (among others) who said otherwise.

Either you're stupid, or you think we are.

Show me a MODERN economy that does not use high levels of oil. The fact the China is rapidly becoming a modern economy and its consumption of oil/fuels is rising just as fast as its economy is some of my evidence.

Yes, I see society collapsing because of oil depletion; the difference is I'm not going to rejoicing because of it. I like our system, I want my grandchildren to have this system. It burns me up to think what future they will have in a world without oil.

And no, unlike others who throw out insults at differing opinions, I do not think anyone here is stupid (most definitely intolerant bigots, but not stupid), and I certainly would never call anyone stupid (If you haven’t noticed I haven’t insulted a single person). I just think you have a differing opinion. I don't take offence to people having contrary views to mine, I don't insult them because they have a different mind set than me. So I ask, why do these leftists do this? What are they so afraid of that they have to resprt to insulting people, be intolerant bigots, just because someone has a viewpoint that counters theirs?

Show me a MODERN economy that does not use high levels of oil.

What we have here is a failure to communicate.

  • Define "high level".  Per-capita oil consumption varies by more than 2:1 between nations with modern economies.
  • Define "modern".  Today's levels of consumption are high relative to a couple of generations ago, and most of the technological advances since then are not oil-intensive; the internal combustion engine has changed relatively little in 50 years.

What I'm disputing here is your claim that "A modern society needs high levels of fuel."  About the only thing which needs fuel qua fuel is heavier-than-air flight; most other uses of fuel can be displaced partially or completely by energy in other forms, often with large increases in efficiency.

The fact the China is rapidly becoming a modern economy and its consumption of oil/fuels is rising just as fast as its economy is some of my evidence.

China is also doing some things which are downright foolish, such as subsidizing petroleum products.

China's transition to a modern economy isn't so related to oil consumption; its promotion of automobiles is.  This is something China could easily have chosen to avoid; China is becoming a big maker of electric vehicles.

Yes, I see society collapsing because of oil depletion; the difference is I'm not going to rejoicing because of it.

Do you see me rejoicing?  I don't even accept the premise (that the problem is unavoidable), and I promote the alternate path every chance I get.

It burns me up to think what future they will have in a world without oil.

Our oil-driven transport system is a historical accident.  The world will stop using oil one way or another, regardless.  We can still have plenty of energy and plenty of transport without oil (a PHEV burning alcohol for extended range needs no fossil fuel, electric rail needs no liquid fuel at all).  I find your insistence that there CANNOT be any fix to be against the interests you claim for your grandchildren.

Want to do something for them?  Put your money toward building the future you want.  Make your next vehicle an EV or PHEV.  Buy "green" electricity.  Build or refurbish a zero-energy dwelling.  Establish the foundation for them to build on.

unlike others who throw out insults at differing opinions, I do not think anyone here is stupid

Then you shouldn't ask people to accept statements which contain logical contradictions or other fallacies, as yours so often do.

So I ask, why do these leftists do this?

There's another example of your vision problem; you can't see beyond your preconceptions.  This gun-toting geek has been excommunicated by both the left and right.

Here's a question: how many people do you know who would actually formulate what they are going to do based upon knowledge of future tax plans (rather than just making decisions that might possibly incorporate current tax status)? I'm rightly considered tedious and obsessive and even I just about think about various general tax rules in the current tax year and the next tax year. (I don't have a car so I can't comment on whether I'd use knowledge of the UK's fuel price "escalator" to guide vehicle plans.) I tend to subscribe to the bounded rationality view of humans mentioned upthread (rather than the rational human).

The most intresting effect of the energy tax on gasolene in Sweden might have been when we had the latest price collapse and taxation were increased. This government greed froze the gasolene price on a high level wich probably influenced demand trends.

"Within the US, a recent report by Deloitte concluded that US utilities are focusing on “demand management” and energy efficiency rather than investing in new generating capability precisely because there is increasing uncertainty over the future of regulations on greenhouse gas emissions."

Corporate management of a utility can think rationally about uncertainty (risk) in tax rates and regulation. I doubt that 'consumers' do much of it. The major way that high costs of gasoline effect demand is, to me, through encouraging entrepreneurs to bring alternative fuels onto the market, not by taxing people to the point that they change their behavior. (The people can get relief most easily by voting out of office the politicians who imposed the tax.) To be believable to entrepreneurs, the high price must be due to supply problems in an orderly free market. Any other high price can collapse after they have made their investment and before they have recovered it in initial sales of their replacement fuel.

A second issue about gasoline taxes is that they raise money which the government has only a vague idea as to how to spend. Presumably, it should be spent to encourage a transition to other fuels. This might be done by paying for research on new technologies. But it is much more likely it will be spent on subsidies that shield some part of the population from the pain of high gas prices.

I think that there are few good ideas for research. A tax that would pay for settling all the outstanding scientific and technical issues would be quite modest. I think such research should be done by the government, but I doubt that it will be.

No amount of research will settle economic issues. No government money should be spent on analyzing them.


Thanks for doing this article.

Since you can start topics might I respectfully ask that that Part 3 or at least Part 3.7 and Part 3.8 of Climate Code Red be posted for discussion? It's a bit much to cut-n-paste, but I have been greatly "moved" by this report (which does frequently reference PO).

I don't mean to imply that your suggestion is inferior to what is in there, but to my naive eye it seems an alternative but also a much broader one. Neither your nor CCR's suggestions would work with BAU and PAU.

An excerpt from Part 3.8 ( and believe me this excerpt does suffer from out of context of not only all ot Part3, but Parts 1 and 2 as well.):

The proposal currently being studied by the UK government to introduce personal carbon allowances (or rations) to guarantee that the national carbon budget is achieved seems well-suited to the demands of the sustainability emergency. The proposal is well established (FEASTA, 2003; Fleming, 2005; Monbiot, 2006; Miliband, 2006):19

• An authority independent of government, like the Reserve Bank, sets a national carbon emissions budget each year, which is decreased each year in a series of downward steps in accordance with the rapid transition plan.

• Because households (in Australia) are directly responsible for about one-quarter of emissions (generated by household energy use and personal private travel), one-quarter of the carbon budget would be made available free of charge as an equal “carbon credit” (or ration) for each citizen via an electronic swipe “carbon card” which would be used to draw on an individual carbon credit balance each time household gas and electricity, petrol and air tickets are paid for. Unused credits could be sold.

• For the energy embedded in commodities purchased such as food and personal services, the carbon ration would already have been paid by the manufacturer, and its cost built into the end price for the consumer.

• If a person lacks the carbon credits to cover a purchase or is an overseas visitor without a carbon credit, he or she could buy on the “spot” market at the point of sale.

• The balance of three-quarters of the national emissions budget would be auctioned to business and government in an “emissions trading” market where the price would rise and fall such that the business and government demand for carbon emissions would not exceed the carbon budget target.

Because both individuals and businesses can trade their carbon credit within the overall national carbon emission target, there is a financial incentive to switch rapidly to low-carbon technologies and
to pursue low-carbon innovation. If a new technology needs less of one’s ration, it will become more attractive, and business has an incentive to make long-term, low-carbon investment decisions.


Hi Pete, I'm really glad to hear that Climate Code Red is having an impact. I wasn't directly involved in the writing, but I was asked to edit the section on carbon rationing you refer to.

I am a member of DEFRA (UK Government Department)'s Personal Carbon Allowances Advisory Group and have been working on the system you refer to - David Fleming's TEQs scheme - for some time now. I was so impressed with it I offered to edit the later editions of Dr. Fleming's booklet on the subject.

I'm afraid I am a little more forward than you and would suggest that such a system is seriously superior to taxation for a number of reasons. Primarily that it provides a guarantee that a nation's carbon budget is adhered to. It also avoids the critical problem with taxation of taking additional money away from people at just the point when they are most strained. Under TEQs the energy-thrifty are actually paid for their restraint. I could go on (and on), but I suggest a leisurely read of David's excellent (and free) little booklet.

All the best,

The oil companies make $0.09 per gallon, government makes $0.51 per gallon. Nine cents is obscene profits while five and a half times is not confiscatory tax. With 2/3 of the American population overweight it would much more "socialy responsable" to tax food. After all, government is always protecting us from ourselfs and doing things "for our own good."

This may come as a great shock to some of you but businesses don't pay taxes, they collect taxes. The government incured price increase is a regressive tax. The market is a much better rationer than any government program. In an unencumbered market there will never shortages, only government can create shortages.

Fredrick Taylor, the father of "Taylorism" believed there was "one best way" to perform any task without considering the consequences of said action. There appear to be a number of you who believe they have found the "one best way" to skin alive the only of Gods creatures that can be skined alive more than once, the American taxpayer.

As for those who justify taxing as the Europeans tax, your required reading for tonight is from Aesops Fables, the one about the fox who lost his tail and tried to convince the other foxes to cut theirs off.

Jeff -- your "better gas tax" seems like a good plan to me.

We Americans have been subjected to intense propaganda, however, which convinces people that they are innocent victims of various evildoers whenever they experience discomfort.

Americans have been taught that they are entitled to cheap energy, food, and shelter. We have also been persuaded that we do not need taxation or government other than the military. Even the military is being privatized, as we observe growing reliance upon mercenaries.

(Warning: Sarconal On)

While people may rail against Big Oil at the gas pump, they are persuaded that Big Oil is a victim of Big Government and the all-powerful Goliath of environmentalist, leftist scientists who make up scary theories only to get more funding.

With massive wealth thrown behind the leftist scientists, the poor Big Oil companies cannot drill for oil in some places, and cannot make a little mess in order to bring us cheap gasoline.

Because the leftist environmentalists also control the leftist media and the leftist government of the United states, Big Oil -- like all Big corporations -- must resort to extreme measures to even break even.

Except when they post record-breaking profits. Then it gets a little confusing.

But we all know that it is better for Big Oil to make a profit than for some Damned Leftist Islamo-fascist Eco-terrorist Evildoers to get the money funneled to them through taxation by the Leftist Government of the USA.

So, Jeff. You are just another one of those egg-headed lefties,eh? Out to scare people with all of your tax-talk and anti-business rants.

I'll bet you didn't even make Stars and Stripes Easter Eggs this past weekend. Too busy with your pro-tax, anti-Christian scheming, eh?

Just wait till I report you to the proper authorities!

That's what we need, you know! Good old-fashioned hierarchical authoritarianism! Let 'em know just who is boss around here. Add a little dose of the "my way or the highway" discipline -- that'll straighten things out real fast.

Increased taxes -- especially a gas tax -- I luaghed and laughed over that one. R U runneen 4 Presi-Dent on that Plat-4rM?

(Sarconal off.) I don't know whether to laugh or cry.

In recent times several of the States in the U.S. are complaining that gas conserving vehicles short change them in fuel taxes while still using the highways the same or even in increasing amounts. In other words, they have been trying to figure out how to apply a fuel tax not to the quantity purchased but to the distance it will take the vehicle.

This just goes to show that the vested interest of the State is contraproductive when it comes to conserving fuel. Maybe they will have to segregate filling stations by the type of vehicle it can service or some such lame-brain idea. I have no fear they will come up with one for how else are they going to tax my electric vehicle for the roads I use.

You premise for this post fails becuase of its most glaring error, the assumption that the revenue gleaned thus will be returned to society in a beneficial manner.

Wrt taxes:

The results you refer to as Demand Reduction (presumably voluntary switching or conservation,etc. resulting inless usage)while others refer to the likely results as Demand Destruction (involuntary lowering of total usage).

Elasticity of demand was also addressed given a specific infrastructure and economy. It seems more a long term thing to switch over the whole car fleet and make a more TOD development, mixed work-living environment.

So while a regressive consumption tax might be a way to reduce pollution, oil dependency and fund a renewable infrastructure, perhaps we should make this a deliberate comprehensive part of the plan.

It seems that the money would just get spent to fill holes in the budget or expand spending wherever they can porkbarrel it and not for the original purpose intended and would hurt the poor both directly and by increased costs on everything (passing on of Diesel transport, etc. in food costs).

So instead of trying to trick the people into using less by some arcane mechanism which does not directly address the topic at hand which is the bad infrastructure we should simply address the infrastructure problem directly and funding to change would come from various sources. This would then be so blatantly honest that nobody could say that it was a left wing conspiracy to tax oil,etc. It could be sold as patriotic against Arabs, Venzuela, etc. In thsi way leftwing and right wing atriotism would be combined in a policy of national unity.

Transition to TOD, electric rail, insulation, alternative energy would be put out in a twenty year transition plan with portions of the economy retooling (from wasteful car factories, electronics factories,etc.), retraining people to make various components and to rezone for windmills, solar, electric high power lines, rails, new dense housing with insuialtion and passive solar/solar water heaters, eliminate inefficient suburban housing for gardens and farms, etc.

The economy would probably have to be essentially put under wartime rule for it to work or to experience a deep long term depression or serious PO/Peak NG/Coal situation for it to stand a political chance.

But I don't see much chance for any simple tax solution as in Europe to work as Jeavon's paradox would take hold and population just keeps growing and tax revenue would be misallocated, so taxes simply distort behaviour generally.

German type insulation/new windows regulations per house/apartment building/office building and perhaps requirements for solar/wind on houses and around cities and electric product efficiencies would be good however, if total electricity usage per household were rationed as well, to avoid Jeavons paradox(more and more efficient gadgets on all the time and on standby).

WRT to the idea of a ration allocation to deliberately reduce use. It seems that after peak due to real world geologic reductions really kicks in along with ELM effect that rationing will become a fact of public policy everywhere regardless and have nothing to do with helping the environment. The policy of transition described above will be forced on goverenments by circumstances. You cannot tax gasoline/oil that is not produced or sold.

The Japanese and Europeans are further along certainly on this road as they took the conservation/taxation/alternate energy concept more seriously from the 70s onwards as they had less domestic energy sources and were keen on developing technology and being frugal but this was just a slight adjustment to the political/economic permanent expansion consensus and a small compromise, like the introduction unions to eliminate Dickensian exploitation.

On Energy Bulletin they had an article on Freiburg being destroyed in the war and now having some very energy efficient structures built. As the USA has such an energy inefficient infrastructure it seems that a devastating war with massive infrastructure destruction would be a blessing long term, as old owners, legal frameworks and social structures could be swept aside more easily and changes made more readily in this case.

As an American consumer of pretty ridiculous amounts of gasoline, I've thought long and hard about what would get me to reduce my use of gasoline, as well as how I think we could sell the idea to others.

1) There must be a major economic incentive to save energy, while allowing those to want/'need' to use a lot to continue their wasteful ways. Freedom, you know.
2) Everyone over the age of 18 gets a voucher that allows them to buy a certain amount of fuel with NO TAXES WHATSOEVER. Right away, you've hooked some Jethros. (American joke.)
3) They get another voucher that allows them to purchase another quantity for today's tax amounts, plus $1.00 a gallon.
4) Any amount over that is taxed at 100% of retail per a gallon.
5) The kicker is this. The vouchers never expire, and are available to be sold on the open market. So, anyone conserving will see money in their pocket. Vouchers would be worth more later as the price increases. Enterprising companies could also accept the vouchers for discounts on their products as a 'green' marketing scheme. For example, McDonald's could take a one gallon no tax voucher in exchange for a Triple Quarter Pounder with cheese, super sized fries and 32 oz Coke. One less gallon of gas burned, one less consumer (eventually). Double benefit!

This is an interesting topic. I have no empirical data to bring to this but my thoughts are:

1) The notion here, that price volatility of finished petroleum products promotes conservation and mitigation strategies, seems to be in opposition to the assumption in the Oil Depletion Protocol that price volatility of crude products is to be avoided because it will discourage conservation and other mitigation strategies. They can't both be right.

2) Although the high rate of fixed duty or tax in most of Europe acts as a damper on price signals, people here (in the UK) seem just as aware of and complain just as loudly about fuel price increases as consumers elsewhere. The non-volatile and relatively high price in Europe has discouraged the worst excesses of sprawling suburbia seen in cities like LA in the US or Perth in Australia. Although our geography is also a factor. High prices here have made it harder for sellers of highly inefficient vehicles to get as big a hold on the market as in the US.

When the piece looks at differences in the behaviour of consumers in the US and Germany, I'm not sure the comparison is valid. There is a lot more "low hanging fruit" in terms of conservation measures in the US than there is in Germany. Also, the Euro zone has been cushioned from the effects of the recent dollar increases in the oil price by the strength in the currency relative to the dollar. Plus, the US economy is currently shakier than Germany's.

If we do nothing to curb demand for crude oil, demand and volatility will most certainly drive the price of gasoline well past the pain threshold of America's working poor. We won't call this a tax, but it most certainly will tax the ability of the poor to survive while the wealthy are merely inconvenienced.

Rationing won't work. Back in World War II we had rationing of just about everything. But gasoline was the one rationed item that people went way out of their way to beg, borrow or steal more than their fair share.

I really like the idea of a graduated gasoline tax. Every driver gets a gas tax card. Every month the consumption account on the card is cleared. When you buy gas, you swipe your tax card at the pump, then your credit card (or a single combined tax and credit card). The first N gallons per month are Tax Free. After that for each additional gallon you buy, you pay a slightly higher tax rate up to some reasonably stiff maximum value (say $10.00/gal) for grossly excess consumption. Once a month you receive your gas tax bill in the mail.

Are there details to work out with such a scheme? Certainly! But it would be very fair for the working poor while encouraging the hogs to lighten up.

Any tax scheme that gave the working poor a rebate at the end of the year would be unacceptable. The poor live paycheck to paycheck. With this scheme, the poor may pay next to nothing in gas taxes, while a middle class gas hog pays an average gas tax of $7.00/gallon. The typical driver may only pay an average tax of $1 to $2 per gallon once behaviors have changed. Unlike rationing, no one is prevented from using more than X gallons a month. It's just going to cost you.

How much a month am I going to pay in gas taxes? That is somewhat up to me. I can choose to combine trips. I can choose to drive 5 mph slower and save 10% on fuel consumption. I can carpool. I can drive a more efficient vehicle. This tax scheme gives me some control over my tax bill.

Can I bank the tax free gallons I did not use last month? These are the kinds of details that politicians can work out.

Any tax scheme that gave the working poor a rebate at the end of the year would be unacceptable. The poor live paycheck to paycheck.

So what's wrong with the gax tax + FICA deductible?  The poor worker would see the money come right back in the paycheck.

With this scheme, the poor may pay next to nothing in gas taxes, while a middle class gas hog pays an average gas tax of $7.00/gallon.

It establishes a perverse incentive to add new drivers to get the zero-bracket fuel allowance every month.  One could sell ration cards or the fuel itself, creating a nice black market.  Plus you have a new (costly, bug-prone) infrastructure for collecting and tracking taxes (which incidentally tracks people too).

A higher tax at the pump adds no such perverse incentives and requires no additional paperwork or tracking.  FICA deductibles are a few lines of computer code.  There is no privacy impact.  What's not to like?

What's not to like?

U.S. war costs
Around $501 billion has been spent as of March 2008, based on current expenditure rates.

Your ASSumption that a tax will be put to beneficial purposes has no basis in reality.

Can't address the argument, so has to fight a strawman.  Guess that means I won.

Can't address the argument, so has to fight a strawman.

On the contrary, where do you think your tax money gets spent?
You view of a punitive tax as a means to an end demonstrates your stunning naivete and how seemingly intelligent people such as yourself, if given enough voice, can affect policy with their inability to think things through completely.
Try asking yourself the next time you feel the compulsion to propose action in this forum, "Will the result of my proposal have unintended secondary effects?"
Failure to consider the possiblity of those effects illustrates your inability to comprehend the overarching mechanism of the Laws of Thermodynamics.
Something every "Engineer" should be well versed in.

Guess that means I won.

How sad. You have some hard lessons coming your way.
With the barbarians approaching the gate, the echoes of the lookouts' cries fading from the deck of the Titanic and the first reflections of the wolves eyes appearing around the dwindling campfire, some still devote their energy to one-upmanship.

There are substantial downsides to the heavy taxation of motor fuels in an environment where oil is short.

The European tax system is massively dependent on revenues form this tax, and if prices rise to the extent that people seriously cut their mileage, a huge hole would appear in their revenues.

This could reach the point where they would put up taxes even more, further hitting demand, and so on.

Presumably they would re-balance, switching to greater taxes on the car itself and so on, but the challenges in high tax regimes would also be very large.