Make gasoline $6/gallon, give everybody $2,000

Burning gasoline is ruining the world. It accounts for 40% of greenhouse emissions, and a large percentage of other nasty emissions including the particulate matter that kills millions each year. Getting it has driven the world to wars. When you burn it, you pollute my air, hurting me, and you owe me something for it, which is a reason that gasoline taxes make sense even in a libertarian context.

So while gas should be taxed to $5 or $6/gallon, the public won’t stand for it. So here’s an alternate idea. Tax gasoline up to $6/gallon in a revenue neutral way. That is to say, figure out how much tax revenue that raises per adult. Americans consume 140 billion gallons/year, so a $3 tax raises 420 billion (before consumption drops.) There are about 200 million adults, so this works out to just over $2,000 per adult. As such, each person (regardless of how much oil they burned) would receive a $2,000 tax credit — a refundable credit payable even if they owe no taxes.

Update: The core idea here came from an earlier comment on this blog, which I forgot about (See comments below for references.)

For people who ride transit or walk or otherwise don’t use cars, this turns into a $2,000 windfall, offset by an increase in the cost of taxis and transit. In theory, for the average gasoline user, it works out to a wash — pay about $2,000 more per year for your gasoline, but get a $2,000 tax refund. At most it’s an enforced savings program.

For heavy gasoline burners — those taking very long commutes, those electing to buy Hummers and Suburbans — it means paying lots more, and subsidizing those who don’t. Those who buy a Prius would be well rewarded, as would those who switch to transit or anything more fuel efficient.

The consequences of this would be:

  • A giant and popular win for non-drivers, and for transit systems, which would get many more passengers to offset their increased costs.
  • Everybody would file a tax return now, even those making little or no money. This would cost the IRS more, but they would probably love it for making everybody file. Not filing would become remarkably suspicious. This is both good and bad, of course.
  • There would probably be some identity theft to try to steal the refunds, this would need to be watched for.
  • It creates a major issue for illegal immigrants. Those who want to cause them trouble would like it for this, as these immigrants would now pay large fees for gas but have no means to get the refund, unless they file tax returns, which of course they are scared to do — and they have no SSNs.
  • Fuel efficient technologies would become very popular and competitive, and the market would immediately start sorting out winners.
  • Fuel consumption would drop, reducing the amount of the credit — or requiring an increase in the tax.
  • Poor people with very long commutes could face serious problems, possibly forcing them to change jobs or homes, or try to carpool.
  • People would drive into Canada and Mexico to get tanks of gas. There would also be a black market in gas smuggled from those countries.

This could be applied to all fuel use, including power plants and factories. In that case many products would increase in price, all offset by the credit.

Aside from the immigrant problem, it is also important to note how bad governments are at restraint, and there would be much temptation to not make the tax revenue neutral, and just make it a tax increase.

Would voters vote for this? Well, designed properly, if we assume that 50% of the gas is used by fewer than 50% of the people, then this is a win for more than 50% of the people, probably more than 70%. And of the top 30% of gasoline users, many of them would intellectually agree with it though it costs them more money. If people realized they would pay less, not more, under the tax, this could win voter support.

This could also be done on a state by state basis in some states. However, it would create problems on the state borders. Border gas stations would die, and need compensation. There would be a lot of smuggling from the other states. More people would risk using purple gas, as well. Enforcing is tough without some draconian system we wouldn’t like so much. It thus would be possible only in states that have few people living on their borders, mostly western rural states. California is not out of the question. It has no large cities on state borders, but does have some decent sized towns.

The positives of this idea are many, as are the negatives. But those positives are pretty valuable. In particular, this system would drive the market to work hard at producing technologies that really reduce fuel consumption, resulting in perhaps the biggest benefits of all.

Why $6? Carbon offsets are much cheaper.

Carbon offsets currently cost under $20 per tonne. A litre of gasoline probably results in around a kilogram of CO2, so the cost to offset the CO2 in a litre is around $0.02, i.e. around $0.07 per gallon. I don't know if it's so easy to quantify the other consequences, but we're likely talking about amounts that are measured in dimes, not dollars.

So why increase the price all out of proportion with the consequences? I'm all for cleaning up my own mess, but if my mess costs dimes to clean up, why should I pay dollars to clean it up? Gasoline isn't inherently evil, it just has some bad consequences.

Why not make sure that carbon offsets have already been purchased before any gasoline gets to the consumer? Then you can use as much as you like, and it's all carbon neutral. Work out similar offsets for other pollutants and make gasoline completely green.

Out of proportion

A few reasons. First of all, note that the goal is that for the majority, this is actually a decrease in cost, not an increase. Matching the pollution credit cost would be the right thing if there were no rebate. This is a penalty on above-average use. And it's not just the carbon, it's many other things. Finally, if everybody had to pay to offset the cost of their burning, the credits would cost a great deal more than $20 per tonne, I think. As total output goes down it costs more and more (in theory) to squeeze more out of other locations.

a) it works in Europe and b) what is the real cost?

Gasoline already costs about $6 per gallon in Europe. And yes,
many more people use public transportation, drive smaller cars
etc. Of course, some people drive cars which use a lot of gasoline,
but let's face it, if you have money to buy a Porsche 911, you don't
care about the price of gasoline. (I recently saw a new Bugatti
on the Autobahn, but I passed it at about 90 miles an hour. Not
everyone with a potentially gas-guzzling car actually drives it
that way, though of course even at 90 m.p.h. he was using a lot
more than I was with a 1.9 litre engine burning biodiesel.)

Is there any reason North America can't do what Europe is doing, apart
from voter stupidity, of course (and the two-party system, which is
another topic).

Carbon credits: the interesting question is whether the price really
does offset the detrimental effects. I think the prices are much
too low and/or, depending on the scheme, the positive effects of
the credit will kick in too late.

In general, of course, the correct way to do things is to put all
of the costs of driving (apart from buying the car) into fuel tax
(and get rid of vehicle tax, toll roads etc): this means less
overhead, it means an incentive to use less fuel and it means
that what actually matters, burning fuel, is what one pays for.
It's up to you if you burn a lot because you drive fast, drive
an inefficient car, don't carpool or drive at all if you don't
have to. (Of course, taxes should be lower if the detrimental
effects are lower, so tax biodiesel less than petroleum diesel:
in all cases, tax the actual costs to the environment).

Good idea

But then, I would think so, given I posted it in a comment here a year and a half ago:

http://ideas.4brad.com/node/394#comment-1609

At the time, Brad, you didn't seem entirely convinced - and you may still be right that it would be political suicide.

I also second Phillip's comment that it works here in Europe, where I've recently bought a 60MPG 1.6-liter diesel (with DPFS, for you particulate-averse folks). With $8/gallon fuel, our market already has sorted out winners, and continues to do so.

My view is also that it's OK for the credit to gradually taper off as gas consumption decreases. The major purpose of the rebate is to make the gas tax palatable enough to get enacted; once it's in place, it's likely to stay.

Although personally, I'd rather just see an across-the-board carbon tax...

Yikes

I guess I pulled a "He's so fine/my sweet lord" on this one, forgetting I had read your suggestion. My apologies. I will update the main story. And yes, I do still wonder about how hard it is to do. As I note, it is a trade-off. It punishes certain types of people (such as illegals) that we don't intend to punish at all, and it also punishes people whom we want to encourage to reduce their gasoline use (poorer people who are forced by their poverty to live far away from work) but who can't adapt very quickly. In theory you can tune the tax and rebate to any amount and stay revenue neutral but you start making more problems at the edge.

No worries

I don't claim to have originated the idea myself, and in truth am not even sure where I saw it first - most likely The Oil Drum.

Whatever the first source, it's still a good idea. As usual, though, the devil's in the details... The illegal immigrant issue you mentioned for one, and the diesel/trucker issue that someone else has brought up. There's a real argument that the same tax should be applied to truck diesel, because that's a really energy-inefficient way to transport freight and we'd like to cut it back. OTOH, neither do we want to bankrupt every OTR driver overnight. Perhaps a phased-in solution would be best, to allow that segment to adjust; it'd be really good if we could rehabilitate freight rail in the US.

But yes, absolutely diesel needs the same high tax. What about biodiesel? Well, here's a hybrid idea: Base the tax on the carbon footprint of the fuel, so it's more like a carbon tax. So pure fossil fuels are highest, ethanol with a poor EROI is second, and good biodiesel is significantly lower. If a truly green fuel was developed (hydrogen from renewable electricity maybe), it would have zero tax under this plan. But then, what about electric cars? Sure they're more efficient generally, so we'd like to encourage them, but if they're being "fueled" by non-renewable power, they should still share some of the burden. The further we take this kind of discussion, the closer we get to a generalized carbon tax, just offset by rebates or credits.

Moving on, the issue about the working poor who need to commute long distances is another thorny one. Frequently, this is a case of semi-affluent areas employing people who can't afford to live there, and there would certainly be something more honest (and less exploitative) about reducing that disparity. But again, many of the people who would be really hurt are the ones who are just scraping by, who are working in a better neighborhood or wealthier town because there isn't enough employment where they can afford to live. Perhaps that could be offset by the spending of the tax rebates? After all, people with lower incomes are more likely to spend their rebates (rather than invest them), and with a hefty gas tax they'd be more likely to spend them close to home.

Diesel

Yes, ideally I want it to apply to all fuels. And while politically doing this would be pretty difficult, it would also politically be very difficult to stop certain lobbies from getting exemptions for their fuel, correctly arguing in some cases that it would ruin their way of life, not just alter where the money goes.

Indeed, it would take quite a bit of study to truly work out the effects of the economy on a general fuel tax, which would case major inflation by increasing the price of all energy intensive goods. Electricity would go up, home heating oil would go up, etc.

The latter creates a challenge because being neutral for the average American doesn't work there. People in the north would pay hugely, those in the nice climates would get a windfall. So this adds complexity as you must then adjust the credit based on the degree days where you live. But then people would try to game it, claiming to live in a cold place etc. The more you try to adjust it to avoid hardship for truck drivers or other professions or industries, or for different areas, the more corruption and gaming you will get.

Plus if you don't tax a fuel, it actually gets cheaper as demand for gasoline drops due to the tax on it! Which would indeed result in lots of diesel cars if diesel was not taxed.

One plan would be to phase it in slowly. Small tax, small credit the first year, then increase in future years. This gives people and industries time to adjust. The poor folks commuting into the rich towns would learn to vanpool. People would learn to pay more for their energy intensive products.

However, this would also drive the manufacture of energy intensive products overseas, if the manufacturing energy is more than the shipping energy. If you live in San Diego, it will be far cheaper to get it from Central America or Asia than New York.

So it may only be workable as just gasoline and diesel, with some credits for a very limited number of applications, to start.

Other tweaks that would be needed

You'd need to raise the price of diesel to avoid a sudden shift to diesel-powered automobiles, but you'd also need to provide assistance for truckers; their salary is not indexed to the price of the fuel they burn (or it wasn't in the late 1990s, last time I had to go to traffic school and wound up chatting with a trucker). (Though you could also not tax biodiesel the way you tax petroleum diesel.) Right now, IIRC, there's also a tax break for the cost of transporting goods, which would be good to slowly eliminate as a way of encouraging more commerce with local providers.

DM, the science backing carbon offsets is currently rather iffy; I'd much rather see actual conservation measures than carbon indulgences.

Offsets are in limited supply

Compared to the size of the US, there aren't a lot of offsets. Assuming we just wanted to stabilise output at 1990 levels, the US at that time was responsible for about 1/4 of greenhouse output. So on top of any other measures required to get back to 1990 levels, the US would have to pay for a 1/3 reduction everywhere other than the US. When you consider how much of that output is related to stuff exported to the US this becomes somewhat tricky. Fake offsets created by planting trees and so on just don't work at all on that scale - you'd need to plant an area the size of Texas... every year. And never allow a tree to die. I can't remember the exact details, but within 50 years the entire land area of the planet would be covered in forest.

On top of this, there is no prospect whatsoever of China and India agreeing to 1990 levels across the board, even if it's Sheriff George doing the 'negotiating'. So more likely the US would need to halve its 1990 levels in order to allow other countries to come up to the level the US is coming down to. Or at least some approximation to that.

To get that sort of global readjustment it would probably make more sense to have a carbon allowance like the UK proposal - each person gets X emissions per year and can use or sell them as they see fit. It could make indenture and slavery popular again, as well as promoting population growth if done badly. Whether it could be done well is an open question - it will be interesting to watch whoever does it first. The global system of course raises the problem of US exceptionalism (again), but we're going to have to address that eventually anyway, or you'll kill us all.

Sigh...

Yet another screw-the-economy-for-the-sake-of-gasoline-while-ignoring-bigger-issues hippy diatribe. How about refraining from truly wasteful activities like... uh... Burning Man? How about we, the global "we", start working on coal mine fires instead of worrying about US gas consumption? The fires in China alone are equivalent to 50% to 100% of US gasoline green house emissions, and at least one of them has been burning since the Qing Dynasty! That isn't taking into account the coal fires in India. Both of these countries are given a pass by Kyoto to keep on polluting, because they are developing countries. But instead of raising awareness about more pressing and severe global issues, you'd rather subject the people of the United States with onerous taxes and burdens because gasoline is evil. We have some of the cleanest burning vehicles in the world. We are not the problem going forward; As China and India develop further they will become bigger and bigger polluters. What we really need to be doing is helping them develop is a clean, efficient way and convince them enviro regulations are a good thing. Unfortunately, China sucks. If we can't even get them to not poison our dogs and give lead paint to our children, then we don't have a chance in getting them on board the green machine.

Where you can do good

Transportation is 40% of U.S. emissions, as I understand it. And the way to make people be more efficient (in all their choices, including how or if they go to burning man or any other driving vacation) is with the market, which is why this idea is interesting. I think it does attack the biggest issue we can easily address. Everybody would like to stop the coal fires too, but that requires different tactics. In the developing countries, we can control what we do with the things we burn. We should also stop burning coal in power plants. The short term answer there seems to be nukes, though eventually other technologies should be able to come in to help.

Nukes

Bud that is the most intelligent thing I've seen on this blog.

I could rant or hours and write books why this is the best option of all.
Not gonna do it. I hope you can read and deduce the reasons why to do it.
The reasons we don't is, "political power" and Socialism!

Are you blind?

Sir have you looked at the atmosphere?
Do you know what it really consists of?
Or do you just listen to people like Al Gore?

This is not an exact number because I don't want to look up the info right now.
CO2 is only about .04% of the Green House gases and less than .0008% of the atmosphere.
Plants depend on CO2 in order to function. We use O2. The plants make it and they
are more efficient when there is about 1,000 to 1,200 parts per million in the atmosphere.
Presently the CO2 levels are less than 250 PPM. We are starving the plants for CO2 due
to our stupidity in the Global Warming farce.
The gas that is approximately 95% of the total Green House gasses is H2o.
Hummmmmm.... do you want to lower the amount of H2o in the air.
It would work better....
Oh but how would you like living on a desert? How about freezing at night
and boiling in the day time.
These gases are only moderators.
Golly what do you think would happen if we just stopped destroying the largest
O2 generator on Earth! You know you might have heard of the Rain Forests?
Now if man is causing any climate problems there is the big problem.

Global Warming is two things:
1. A natural event that is due mostly due to the Jet Stream and the Atlantic Gulf Stream.
They wander around and in cycles the over all temp rises and falls in a predictable pattern.
2. Man causing the Global Warming is ludicrous. It's just a political power grab. Can you say
Socialism? Not that's a catastrophe!
Either you know this and are just a Liberal jerk,
or your don't and you're IQ is lower than your shoe size!

I really can't see Europe as a model for anything good!

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