Albany Coddles the Oil Addicts

[Editor's Note by peakguy] Pataki signed the gas tax cap into law yesterday despite earlier concerns that oil companies might not pass on the savings to consumers.

[editor's note, by peakguy] Yankee and I both wrote parallel articles about this and posted them within 15 minutes of each other (hey great minds think alike!) I have combined them as best I could in this one post.

[editor's note, by Yankee] Since this post is on TOD:NYC, it obviously focuses on the proposal to cut state gas taxes in the NY legislature. But note also that similar proposals have cropped up in North Carolina, South Carolina, Minnesota, Massachusetts, Delaware, and I'm sure we'll see some others soon.

The President has said that we are "addicted to oil". An addiction needs to be treated seriously, not actively enabled. But this is exactly what NY State's legislature wants to do. They are set to approve a 4-9 cent reduction in the gas tax in yet another attempt for politicians to look like they are doing something about increase gas prices.

Although I tend to think that a federal gas tax increase* would actually be a good thing, I can understand the political distaste for such a decision. However, I don't understand why they won't let the current status of the state tax just stand. Once the gas tax is lowered, it will be politically difficult to raise it later on, regardless of whether the wholesale prices of oil either raise or lower. That is, one day the politicians might wake up and understand why a stiff gas tax may be the best thing for us, despite high wholesale prices. Or prices might (temporarily) lower, in which case they'll want to raise the tax again, but could face a public outcry.

From the NY Times today we also hear that nobody's promising that this will even trickle down to customers (drug users/abusers?) at the pump:

But should the measure win final approval, even the oil industry acknowledges that there is no guarantee that the savings will get passed on to consumers.

One reason is that gas taxes, for the most part, are levied when oil companies import fuel into the state and not directly at the pump. Though tax cuts at the wholesale level are passed down to retailers, small cuts would not necessarily show up in prices set by gas stations since variations of a few cents among stations are common.

"I'm not sure consumers would see it," said Rayola Dougher, the manager of energy market issues for the American Petroleum Institute, the oil industry trade group. "They might see something, but I'd be astonished if they saw 8 cents across the board."

Why is it that consumers wouldn't see much difference? Because the oil companies (drug dealers?) would take part of it at every step in the distribution chain.

Theoretically, a driver filling up a Toyota Camry could save 74 cents in state taxes and as much as $1.76 over all in counties with the highest taxes, if they choose to opt in. But in reality, while a steep cut in gas taxes would almost surely be felt, modest cuts could be lost in the distribution chain from the oil companies to the gas stations, several oil industry officials said. And that could leave at least some of the tax relief in the hands of the big oil companies that have been reporting record profits.

So it's just another subsidy for the oil industry. And this leaves us no closer to dealing with the real issue, which is our addiction to oil coming from unstable places and contributing to global warming.

Rather than trying (ineffectually) to lower the price of smack on the street and instead giving more money to those dealing it, why not take that money and invest in conservation (drug treatment?) programs that might actually lower the level of inelastic demand out there.

Why not rebuild the state's rail network to more efficiently move around people and freight goods?

Why not invest in rideshare programs that are proven to reduce individual fuel costs?

Why not rezone many suburban "residential-only" areas to allow critical commerical enterprises like grocery and drug stores to be closer to people?

Why not offer more bus/light rail service to underserved yet dense areas?

The list could go on and on, but the point is that the way to deal with an addiction is not to lower the price of the addictive drug. You need to show the addict the pain they are causing to themselves ($ budget, obesity, etc) and others around them (global warming, pollution, etc). Then you need to offer a positive alternative way of living and give them hope that there is an end in sight to the pain they are inflicting on themselves and others around them.

This proposal offers neither a frank description of the problem to the addict nor hope of building toward a positive alternative. It only coddles the addict and rewards the dealer.

*The word "increase" in this sentence was initially omitted. Thanks to Halfin for pointing this out.

As long as people like Michael Lynch, Daniel Yergin and CERA, EXXON-Mobile, and the USGS are telling people that the next fix will be in the spoon for the next 50 years then the addict is not going to be interested in quitting.  The addict will only consider quitting when the downside to doing the drug is greater than the upside and when the downside is relatively far away relative to the pain of withdrawal HE IS NOT GOING TO EVEN CONSIDER IT.  Sad but true.  Oil supply optimism could truely be considered irresponsible at this point.  
Re:  The "Iron Triangle" at work

Boone Pickens gave a speech in Dallas this week advocating a sharply higher gasoline tax, to bring our price of gasoline up to what Europe pays, offset by cuts to the Payroll Tax.  

The major media, as usual, completely ignored the speech.  The after the speech, the Dallas Morning News ran an interview with the former chief economist of ExxonMobil, in which she said she was amazed that oil prices haven't fallen yet.  She suggested that since development costs in the Middle East are only $5 per barrel, it is only a matter of time until oil prices fall sharply.  

My "Iron Trinagle" comments:

There are many other industries that feed into the Iron Triangle you so aptly describe WT. For instance real estate is another huge commerical interest that loves cheap gas - they get to sell large inefficiently built suburban homes allow more room to put your oversized stuff which benefits Walmart and other discount retailers, etc...
Did Pickens say cut Payroll or Income taxes to compensate, or both ?   Either way, I'm with T Boone.  

However, if gas prices are lowered by reducing taxes wouldn't the market reaction be to increase consumption, and if supplies are really constrained, the price will just bounce right back up to equilibrium, right?  Only difference is that someone in the supply chain would be getting the extra money instead of the public coffers.

The best bad alternative might be price controls so that shortages develop.  That would really get people's attention.  I'm only half kidding.  

He suggested a cut to the Payroll Tax, which is highly regressive, levied on the first dollar of income.  
WesTexas; I love your iron triangle metaphor.

Might I suggest that the attitude you describe is so pervasive that it might be called an "iron curtain" of denial?


Don't know where to post this....

What a waste of human capital!

God....I'm at a lose for words.  
Yes, a complete waste indeed.
Waste indeed.

It isn't just the prize money; it's the active encouragement of US engineering skills and investment capital being applied to a complete dead end.

We should probably tax water too.  Too much demand in NYC for upstate water, and too much power pumping it.  High prices will be good for NYC water junkies, it will spur conservation and alternatives.
First, I don't think NYC uses more water than upstate or suburbs per person - we don't have to water enormous lawns or fill pools. We just have a lot of people here! But, I agree that we should consider any ways to reduce waste. And most of it is gravity fed instead of pumped over mountains like out West.

And exactly what alternatives to water are you thinking of?

The best thing people in NYC could do actually is to stop drinking water out of a bottle that has to be trucked into the city instead of using their taps, which has some of the best water in the world.

Amen, peakguy. Bottled water is nothing but trouble.
The study said that demand for bottled water soared in developing countries between 1999 and 2004 with consumption tripling in India and more than doubling in China during that period.

That has translated into massive costs in packaging the water, usually in plastic bottles made of polyethylene terephthalate (PET) which is derived from crude oil, and then transporting it by boat, train or on land.

"Making bottles to meet Americans' demand for bottled water requires more than 1.5 million barrels of oil annually, enough to fuel some 100,000 US cars for a year," according to the study. "Worldwide, some 2.7 million tons of plastic are used to bottle water each year."

Once the water is consumed, disposing the plastic bottles poses an environmental risk.

loved the story, but adored the picture
That IS a great photo. She must have about 15-20 cases of water there.
Note that they are all single serving size bottles.  Long live individualism!
And in a Sprawlmart buggy, no less!  Awesome find.
This is the kind of thing you see all up and down the coast when a hurricane warning gets posted. Many residents have wells, not city service, and the power always goes out. And can stay out for quite a while.

So you fill your bathtub to flush the toilet. You fill your your biggest cooking pots for drinking water... some head to the store and buy it, but they are usually not native residents. They are transplants who don't know the real drill.

Bottled water use in the US is a different issue than bottled water use in developing countries.  One of the primary factors in poverty in the underdeveloped world is lack of access to clean water.  In those places, bottled water is neccessary.

Like many of you I grew up in a time where bottled water was a luxury and not something I ever drank.  The first time I travelled to China, I was shocked that mt company had free bottled water stocked in the break room, like we have free coffee here.  It seemed so odd to me that I kept one as a momento.  I took me a while to realize it wasn't a luxury, it was a healthy neccessity.

and with bottled water, tooth-decay is supposedly going up again.  Sanitized water for bottling has neither the fluoride that we've added to many water supplies, nor many of the natural trace minerals that come from tap water.. this also happens to some extent with 'brita' style filtering, you throw out the good minerals with the bad ones.

Some solutions are in the offing, though it doesn't help the forementioned packaging waste, the leachates from plastic softeners, or the issues (In Maine at least) of sending millions of gallons from our water tables out of state as private (and largely untaxed) property.


"and with bottled water, tooth-decay is supposedly going up again.  Sanitized water for bottling has neither the fluoride that we've added to many water supplies, nor many of the natural trace minerals that come from tap water.. this also happens to some extent with 'brita' style filtering, you throw out the good minerals with the bad ones."

  I hope that you are better informed about "oil/fuels" than about water.  Fluoride is the worst thing that anyone could be placing in their water.
  The minerals in the water are not used by the body anyway.  The only pure water available today is distilled water; filtered water is nothing but a joke stay away from ice cubes that come from ice machines with water filters.

"Some solutions are in the offing, though it doesn't help the forementioned packaging waste, the leachates from plastic softeners, or the issues (In Maine at least) of sending millions of gallons from our water tables out of state as private (and largely untaxed) property."

  Bottled water is necessary in many cases and besides it provides a lot of people with jobs.  At a number of schools here in the state of WA there are stores of bottled water; our big deal is earthquakes ... and plastic bottles are much, much, much better than glass; I would not refer to it as "packaing waste."

  There is still some controversy about adding fluoride to water supplies, but it has been an enormous success given the state of our dietary and other healthcare and economic realities in the US.

"The American Dental Association, the federal Centers for Disease Control and state government have endorsed the practice of fluoridating public water at 1 part per million for nearly 50 years to combat tooth decay in a safe, cost-effective manner.
Massachusetts officials supplied The Standard-Times with one study that shows the effectiveness of fluoridation on children's teeth. There are hundreds of studies from across the country that compare children who drink water without fluoride to those who drink fluoridated water.
The 1981 study by the Harvard University School of Dental Medicine and state Department of Dental Care Administration looked at 231 children ages 7 to 14 who grew up with fluoridated water in 1981 in Holyoke and a similar group of children who were screened in the same Holyoke schools in 1968 before the community added fluoride to its water.
The researchers found that among young boys and girls there was a 72 percent reduction in tooth decay, as measured through cavities, missing teeth and other signs of decay.
Comparisons of nonfluoridated and fluoridated communities in the United States, Australia, Britain, Canada, Ireland and New Zealand have consistently demonstrated the effectiveness of water fluoridation in reducing decay, according to the CDC. The reduction in dental decay ranged from 15 percent to 40 percent in these studies.
With this kind of results, it is understandable that the directors of New Bedford's anti-poverty agency, PACE, made a request several years ago to the New Bedford Board of Health to add fluoride to city water to help children and adults, and particularly to reach poor children who do not have good dental care at home through regular brushing or at a dentist's office through regular visits. "

As far as our bodies 'not using' the minerals in water, ..please.  Regular drinking water doesn't carry the volumes of Calcium or Magnesium that we NEED every day, compared to what 'should' be in our food, but if it's there in solution in the small intestine, it will get picked over, and Ca and Mg aren't the only minerals we need.  

In the case of emergency water rations, who could argue with whatever Wa. has pulled together? Sure.. But the argument is about the ridiculous volumes of throwaway bottles that clog our solid waste streams and throw away precious feed-stocks in one-use containers. (Even recycled, that plastic has maybe two degraded uses to go, before its tossed.  Glass, or a reusable water-bottle could go on for years.  I hope the schools have at least stocked up in large, reusable water-cooler tanks, and not just cases of 'handi-paks'.. we've convinced ourselves that these conveniences are absolutely life/death necessities.

Just a reminder that the trade in illegal drugs also provides many people with jobs, as does the manufacture of Hummers.
Providing people with jobs is not, and never has been, a valid arguement to continue engaging in some wasteful or detrimental practice.
Wouldn't fluoride in toothpaste suffice?
Actually, I grew up with well water that was not fluoridated. When I moved to NYC, the first thing the dental hygienist asked me was whether I grew up drinking well water, because people with as many cavities as I have often didn't drink fluoridated water. (That's not to say that you can't otherwise have lots of cavities, but there's a strong correlation according to her.)

Toothpaste actually is not as good as we might want it to be—many places that don't have fluoridated water give kids fluoride pills.

"NYC water junkies"?  Huh?

That makes zero sense, friend. Water use in New York City per capita is way below what it is elsewhere. As Peakguy said, we have no pools to fill and no lawns to water. We should be encouraging people to live in dense urban environments like New York City to get people to conserve water.

And "too much power pumping it"? Where are your facts? New York City's water flows down from the Catskills by gravity:

In comparison to other public water systems, New York City's system is both economical and flexible. Approximately 95% of the total water supply is delivered to the consumer by gravity. Only about 5% of the water is regularly pumped to maintain the desired pressure. As a result, operating costs are relatively insensitive to fluctuations in the cost of power. When drought conditions exist, additional pumping is required.
And it doesn't even use energy for water filtration. More from "Today, New York City has the largest unfiltered surface water supply in the world."

There are a lot of people here and together, we use a lot of water. But we use a lot less of it than if we were spread out over miles and miles of suburbia or exurbia. TJ, don't fall into the trap of thinking that just becuse New York City is big and filled with cars and asphalt, it is bad for the environment. In fact, quite the opposite. New York City residents use less energy and water than other Americans do.

OTOH, new yorkers, at least the ones i know(like my brother) would never think of drinking from a tap. i saw some enterprising fellows filling up bottled water jugs from a stream by the road on bear mountain, outside the city. i surmised that it was going to be retailed.
Tell your brother he's totally foolish. In addition to The Interloafer's points above, your brother should also read this piece from Treehugger. If New York's water were bad, there'd be an awful lot of sick people, and I don't think that would be good for City Hall.

If people are really worried, they'd be much better off buying a Brita filter than bottled water. Even with the filter changes, it still comes out to be a lot cheaper and environmentally friendly than bottled water.

hey, your preaching to the choir. he's already been so informed years ago. in the days that used to was, i had a gig as a water chemist. i knew about n.y.c. water quality before bottled water. what people don't like is chlorine. tap water may not be filtered, but it damn well better be chlorinated
And fluorinated. I owe my cavity-free set of teeth to fluorination in NYC water.
That's hilarious because whenever I've backpacked around Harriman I always filter the water.  Those parks get alot of use and Giardia is far too nasty to be just drinking straight from a stream there...

And I'm sure it was sold as "Mountain Spring Water"...

Geez, irony really is dead.  If I look into the NY budget for 2006, there is $540,000,000 for NYC transit, and another $93,000,000 for the Long Island RR.  Preaching virtuousness for gas taxes because NYC has a highly subsidized transit system paid for by others is not helpful.  If you want to be taken seriously you had better figure out what the replacement is going to be in rural NY areas when your demand destruction occurs.  Possibly that money should go into alternatives for the rest of the state. Otherwise most NYers will just take the decrease.
NYC subsidizes the rest of the state big time Like by over $10 billion / year. Just look at the Mayor's [budget presentation for 2007. Or Ask the Center for Government Research.

When you add everything up, NYC is just plain efficient because it is dense and the rest of the state is just too spread out. They need to change their living arrangements - recenter their towns and villages, moving their homes closer to work, shopping areas, etc.

Sorry - that got garbled:

NYC subsidizes the rest of the state big time. Like by over $10 billion / year.  Just look at the Mayor's budget presentation for 2007. Or Ask the Center for Government Research.

When you add everything up, NYC is just plain efficient because it is dense and the rest of the state is just too spread out. They need to change their living arrangements - recenter their towns and villages, moving their homes closer to work, shopping areas, etc.

I don't think peakguy's suggestions in the original post were NYC-centric. In fact, I think that a lot them are mostly applicable to rural, upstate areas. An improved rail network would benefit deliveries to every area. Rideshare programs are most effective outside NYC, where there are no other options. We certainly have mixed-use zoning in NYC, so that's most relevant to small towns and suburbs.

Don't forget that there are 8 million people in NYC. That's an awful lot of state residents, and less than 25% of them own cars. Unless we want more cars on the road in a city that already caters to this 25%, then we should be happy that the state government puts so much into subsidized transit.

TJ - sorry. I didn't catch the irony. It's hard to do that via the Internet.

Probably half of the $540 million for the subways and $93 million for the LIRR comes from City residents because they pay the bulk of State taxes. They also pay the fares to ride every time they board a train. Upstate highways, on the other hand, are absolutely free for motorists, but they are paid for in large part by City residents who will never use them. Upstate pays for a portion of the investments in rail infrastructure, but city folk fork over a big automobile subsidy in the form of upstate roadways that encourage more driving, more gasoline demand and therefore higher gas prices.

you had better figure out what the replacement is going to be in rural NY areas when your demand destruction occurs.
I think everyone has to figure this out, why put the burden only on already-energy-frugal NYC residents? I'd say that the answer is re-urbanize the built environment, upstate and downstate. Cities and compact towns are the way people will live in an energy-scarce world, as we did before the cheap oil age.

There is a reason Jim Kunstler lives upstate. It offers a great pre-existing environment for relocalization. Buffalo. Albany. Syracuse. Utica. Rochester. Oneida. Schenectady. Binghamton. Upstate New York is going to be better off than a lot of other places when demand destruction begins. Not because a fiscal subsidy from New York City will be there to provide people with alternatives. It will be better off because of its own inherent strengths.

As most readers know, in most of Europe we have always had high taxes on auto fuel.  Even now with high raw material (crude) prices, taxes make up about 60% of UK petrol (gasoline) costs.  The effect has been to ensure all but the wealthy and what are known as "petrol-heads" take account of fuel economy figures when choosing a car. 40 mpg cars are more  common than those that do 20.  
Also, about 5 years ago the UK government introduced what was called the "fuel price escalator" - a policy to increase auto fuel taxes year-on-year by a fixed amount equivalent to around 40 cents a gallon.  For the last three years and following fuel price protests in (I think) 2003, the rises were not implemented - the price of fuel was rising fast enough anyway, due to higher crude oil costs.  However, the original aim was to encourage fuel efficiency in order to reduce CO2 output - with a side effect of reducing oil consumption.
Unfortunately, the US is home to a rather extreme variant of rugged individualism that tends to include a couple of elements that strongly militate against those types of measures: 1) cheap energy as a birhright (you'll take away my 12 MPG SUV when you pry my cold dead fingers off the steering wheel, and 2) GOVERNMENT is a disease, and taxation is the symptom.  Of course this is hyperbole but it does reflect a potent portion of the voting public in this country.  
If you step back and actually think about the bigger picture, you can clearly see that the majority determines policy.  However that policy is spun to whatever degree needed to satisfy the wants of the majority.  Who cares about the end point, I need to get elected now!  Maybe two year terms to the house wasn't such a grand idea.

Corporations fund politics, not people.  Without this simply understanding, our efforts are wasted.  It's about the greater good, and I'm optomistic at some point people will be forced to band together.  That will be after the initial battles.

Yes, it's the sewer syndrome-
It's not broke, but you say we need to upgrade it?


Oklahoma oil production fell again last year
to a 93-year low.


items "1" and "2" are in obvious short term conflict ;-), it will be amusing to see how that breaks out over the next year.
           I've always been alarmed by the consequences of high British petrol taxes. These taxes seem, to me at least, to result in a lot more people driving very much smaller cars than are seen in the US. Don't these tiny cars result in more people being killed in road accidents?
I wouldn't think so. If you're talking about accidents where two cars collide, then all that matters is the relative size of the cars: if you have two SUVs, you're no better off than two small cars. The real winners here, though, are pedestrians, because SUVs are much more deadly for pedestrians than regular cars, both because of the greater mass, as well as because they hit higher. A regular car will break your legs, an SUV will break your ribs. And don't discount the moral hazard factor either: people feel safer in their big cars, so they drive more recklessly and as a result crash more, which may or may not offset any potential safety benefits of such cars.
Also SUV's are a lot more likely to roll over if they start skidding and sliding due to their high center of gravity. According to the linked page: "In 2000, SUVs had the highest rollover involvement rate of any vehicle type in fatal crashes -- 36 percent, as compared with 24 percent for pickups, 19 percent for vans and 15 percent for traffic cars."

If Michael Schumacher can crash his 600 Kg Ferrari at over 160 kph and only break a leg it leads me to believe clever engineering is more important than mass, and I assume that's why the Euro NCAP program was started. I rarely see a commercial for a car nowadays where they fail to mention how many stars the car got.

Small cars are also able to avoid accidents more easily.  They have better rearward vision.  Equipped with seatbelts and airbags, they are probably as safe as larger vehicles in all situations except an unequal mass collision of a small car in a head-on with an SUV.  
Getting hit broadside by an SUV can also be bad, because the front on an SUV will hit at the head level of the person in the smaller car.  If the car has side airbags this danger can be reduced somewhat (but those are relatively new, so only the newer cars will have them).  In any case, this is not an argument against the use of smaller cars, but rather one against driving SUVs.  
We have about 3,000 deaths a year from about 25 million vehicles. Population is about 60 million. Don't know what the equivalent US figures are. Mandatory seat belts front and rear, with the vast majority of people obeying the law, have reduced the death total from about 4 - 5,000 per year down to 3,000 per year. Speed cameras have been introduced in "accident" black spots, but overall numbers have fluctuated since the speed camera introduction. Deaths fell for a few years and have increased and decreased since, so you could argue speed cameras don't actually make any difference. Mandatory seat belt wearing is far more important.

Tiny cars are much better to hit a pedestrian with, rather than the front thick steel bumper of a land rover and the high radiator grill. I used to straighten out the bumper of my land rover with a club hammer or winch after off roading.  A pedestrian isn't even going to mess up the paint on a land rover bumper.

"I tend to think that a federal gas tax would actually be a good thing..."

Just wanted to point out that there already is a federal gas tax. It's strange how often I read comments which seem to assume that a gas tax would be something new.

You're right, I'm sorry--I meant to write federal gas tax increase, but I was typing quickly. Error noted.
This is also the problem of having two editors to one story!
Sorry, I'll fix that - I know there is Federal gas tax - I left out a few words in there - I meant to say "I think there should be a higher Federal gas tax" -I'll fix that now!
Zhang's lab, which is funded in part by the Illinois Pork Producers Association, has developed a method to feed waste continuously into a reactor, which is essentially an industrial-strength pressurized oven. And, Zhang boasts, "We don't even need pre-drying."

And exactly how hot and long does that oven have to run? How much energy is expended? What's the EROEI?

Best ask Master - Blaster.

'Who runs barter-town?' Master - Blaster or Auntie?

If pig sh*t is not going back onto the land, then you need another externally available input for fertiliser.

If you have to cook it, you need another externally available input to heat it.

Perhaps the politicos and economists should repeal the 2nd Law of Thermodynamics. Then we can all relax.

As Michael Pollan, the author of 'Omnivore's Dilemma' said on Fresh Air the other day, 'Agriculture has taken a solution (ie, the classic Farm), and split it into [two] problems..'
from the article:
Like most farmers, much of the manure from Dumoulin's hogs winds up as fertilizer.

there we go again,addicts all. instead of using the manure for crop fertilizer,we'll use up some fossil fuel to make more fossil fuel....halleluyah!
If it works with what comes out of pigs it will work with what comes out of humans.
You may lose the nitrogen, but the phosphorus and potassium aren't going to wind up in the fuel.  If you dump the non-fuel products back on the field you'll be closing the loop.
As far as changes in gas taxes, JDH at Econbrowser posted a surprising economic analysis last week:

He argued that reducing the gas tax would not actually bring prices down much at the pump. The argument is technical and has to do with elasticity of supply and demand, and I'm not sure how convincing it was. But if we go along with it, one of the correlaries is that raising gas taxes would also not have much impact at the pump either. An increase in the gas tax of 50 cents might only turn into 5 cents higher at the pump.

To see why this might be true, assume that prices are high right now because we are fundamentally supply-limited. This is consistent with a lot of Peak Oil reasoning. Then we see these prices in economic terms as being high enough to suppress (Peak Oilers prefer the term "destroy") demand enough so that it is in line with this limited supply

The key point is that raising taxes won't change this price at which demand is suppressed to the point where it matches supply. And, further, adding this tax won't make that much difference in supply. Oil suppliers are making plenty of profit on oil. Oil is not more expensive because it is costing them more to produce; rather, its high price is what economists call "scarcity rent". Oil is expensive simply because production is limited (in this model) and the price has to rise in order to suppress demand as described above. This is why oil producers are making record profits, because they are lucky enough to own an intrinsically inexpensive commodity which is scarce and in great demand.

Therefore, increasing gas taxes will make oil less profitable but won't substantially decrease supply, because supply is limited by physical factors and not by its costliness to oil suppliers. If supply remains about the same, price at the pump will stay where it is because we know this is the price which suppresses demand to match that level of supply.

The bottom line is, in current economic conditions, governments could raise gas taxes and almost all of it would come out of the windfall profits from oil producers. There would be little impact at the pump because oil producers would still be making plenty of profits and would continue to supply oil to the maximum degree possible, as they are today (world excess production capacity is at record lows).

This is kind of a good news / bad news message for those who hope to raise gas taxes. The good news is that they could do so with little pain at the pump, and put the revenues to work for alternative energy research, etc. The bad news is that if they wanted to suppress ("destroy") demand even more by raising prices at the pump, this method will probably not be effective unless or until taxes are raised to an extremely high level.

People who advocate a higher federal tax are not talking about $.50 a gallon. They're talking about European-esque gas taxes. Can you really tell me that there's no effect of gas taxes on consumption in Europe? With prices like $6.48 as in Amsterdam or $6.27 as in Norway, I'm guessing that demand would be somewhat suppressed.

Now, you may disagree with that kind of taxation for other reasons, but let's at least compare apples to apples.

Going by what has been shown earlier, by Khebab and the WSJ, US gasoline useage is largely inelastic, at a roughly 10 to 1 relationship between price increase and demand reduction (I dislike the term demand destruction, demand has not been permanently destroyed, only supressed).
A $3/gal tax on $3/gal gasoline would result in a net 100% increase, reducing useage (assuming a simple linear extrapolation) by a meager 10%.  As Europeans already know, folks keep right on motoring even at $6.50 equivalent gasoline.

The idea is sound (tax undesireable behavior), but if reduced useage is your only goal, you will be somewhat disappointed.

Gasoline usage has only shown to be ineleastic in the short term.  The reality is that despite the rising price of gas, people still need to drive the same distances.

However, long term elasticity has not been tested, and the European model suggests it will be elastic.  Meaning that if the price of gas stays high, people will replace their current cars with models that get better mileage.  People may drive as many miles, but they'll be doing it in a more efficient fleet.  The transition takes time because the average life of a car is something like 10 years.


"The idea is sound (tax undesireable behavior), but if reduced useage is your only goal, you will be somewhat disappointed."

In the short term.  The goal of whatever policy should be to encourage and accelerate the structural changes needed to bring us back to a more sustainable footing.  Re-establishing towns and cities that people want to live in will take time.  It started happening before three dollar gas, partly due to the re-recognition that urban-life has it's benefits and partly because in many cases the suburban lifestyle was becoming a hellhole of McHouses and congestion.  So higher taxes on gas (returned through income tax reduction maybe) might accelerate that trend.  But, it needs to be combined with other policy changes.  

How to encourage relocalization of agriculture and manufacturing might be even harder.  

Good point - taxing undesirable behavior often does not cut it down. Example: Cigarettes, which could cost about $1 a pack in the US, are $5 a pack and climbing. And people still smoke, in fact, the real cut-down in smoking has been in states with massive anti-smoking campaigns, or propaganda. Anti-smoking propaganda is very strong in California and we have a very low rate of smoking. Arizona has cut down the smoking rate a fair amount with their own anti-smoking propaganda campaign. The cost has nothing to do with it though, I've lived in areas where lots of people smoke, and the poorest smoke the most, and generally the most expensive way (individual packs bought at convenience stores/gas stations - Oh, and generally while gassing up their older, gas-guzzling car with the crudely hotrodded engine to make it use more gas and be louder and more aggro.)
Poor people make sure someone sees them when they smoke. If you know poor people you know that highly taxed cigarettes are changing behavior. Obviously not as much as we would wish.
High fuel taxes in Europe caused
a big shift to 'dirty' diesel ..
'dirty' as in more particulates
vs those from burning gasoline

Triff ..

My reason for supporting a much higher gas tax--and in fact an energy tax--is that it will accelerate what is going to happen anyway, i.e., much higher energy prices.  

We can at least now offer a carrot, abolish the Payroll Tax, along with the stick, higher energy taxes.  In effect, I propose that we tax energy consumption to fund Social Security/Medicare instead of taxing payrolls.

I think any approach to increasing gas taxes has to be sustained and increased over time to have an impact and combined with increasing availability of alternatives. It would also help to reduce other financial inducements to live in areas that require lots of driving - like preventing suburban sprawl.
High prices work...forget the tax part.  If we can all agree that price determines demand, we can move to reason that increasing taxes and thus price, will affect consumption.  The goal is to conserve, so the net effect would be positive.

Higher taxes per gallon would reduce demand, but the supply curve would be flat and inverting.  Normally supply curves rise b/c producers would produce more at higher prices.  But in the case of a depleting supply, the supply curve changes.

The government could capture some of those future increases in prices now and use it as a fund for other energy sources.  We would be forced to not only conserve but prepare for life without oil.  If the gov't strapped a $1.50 to every gallon sold, it would hurt.  But that money, properly spent (yeh right), could be set up to fund new research.  What you would gain is lower energy intensity, higher conservation, & a plan for the future funded both those still living in the old system.

So, you are effectively proposing a windfull profits tax on oil companies to fund alternatives? A very bad idea, IMO.

First IOCs account for just a part (and a decreasing one) for the oil/gasoline supply in USA. Most of it comes from foreign companies which obviously can not be taxed here.

Second IOCs are and will be facing rising costs and dropping production - taxing up what is left as a profit will kill their so much needed investment projects. It will also kill whatever desire they may have to look for alternatives themselves.

Third you are relying on the government to determine what obviously the market would decide most effectively - which alternatives are the best. Even worse - in your scenario the government should be guiding their research and implementation.

Fourth you are not addressing the timing problem - the core of the PO argument is that we will not have enough time to transiotion to a post-oil society in an ordered manner. You are not suggesting to buy us some time by moving forth the demand destruction, rather you suggest to continue as usual, assuming that time will be enough and eventually someone (government?) will fix things.

"a big shift to 'dirty' diesel .."

There's been a big shift to diesel even in UK in the last 5 years, about the last European country to do so.  Diesel and petrol are about the same price per litre, but some diesel cars are amazingly economical.  My boss has a large saloon (by European standards) with impressive performance that does 45+ mpg.  Even the SUV's sold here are mostly diesel and get better mpg than petrol saloon cars did 10 years ago.  So yes, while the elasticity may be weak in the sort term, in the long term people will choose more economical cars and particularly diesels.  It's a matter of trading one pollutant - more CO2 from less efficient petrol engines - for particulates from more economical diesels.

The problem is, will politicians tolerate the unpopularity of such a step to reduce oil demand when:

a) It takes years to take effect and people are suffering higher fuel bills while they still have old, inefficient cars;
b) The actions of one country - even the US - only have a small effect on global demand and hence prices.

"The actions of one country - even the US - only have a small effect on global demand and hence prices."
Actually, the US accounts for about a quarter of oil demand globally, so it would have a noticeable effect, at least for a bit. The real problem is all the developing countries, and especially China and India, which are aspiring to reach american levels of prosperity, and where cars are to a much larger extent status symbols that everyone wants, to be just like americans. And an additional 2 billion cars would cancel 10 times over anything that the US could do.
Right on OilDrummers. The addiction must be fought!
The addiction must be fought, that's right lads.

The problem is that if you're addicted, price doesn't really matter. The freedom of movement in the privacy of a car prevents any succesfull ridesharing program for example. . Even if prices double again. There is one end to this addiction, called Cold Turkey.

I'm always very amused by the reaction to " high" huel prices on your side of the atlantic.

Just filled up the Nissan for more then $8 a gallon, and I don't really care. (It's still cheap in fact!)

Best from Holland

Excuse me, I've got to see my pimp, I mean pump. :-)
NY State needs to look at what happened in Illinois a few years ago, when gas prices spiked and the state instituted a six-month gas-tax holiday. Illinois DOT has yet to dig itself out of that one financially.

Plus, has anyone noticed that the Federal Highway Trust Fund could go bankrupt as early as 2009 -- even without any changes to the federal gas tax?

And, sorry folks, but I get upset when people wig out on the price of gasoline, let alone on the gas tax, as if they were the sole costs of driving. In fact they are only a small part.

The cost of driving is 44.5 cents per mile according to the IRS (see,,id=105708,00.html or ). Those costs do not include a parking costs, which is can be accounted for and deducted separately.

AAA has some interesting numbers to consider. They state that, for a car owned and driven 15,000 miles per year, the average cost to the owner is $7,800, or 56 cents per mile. When you apply that 56 cents per mile to your commute, you may be shocked at the figure and be tempted to give up that second or third car which sits idle 95 percent of the time.