Two summers ago, I made a step toward the dark side by trading in my bicycle for a shiny new SUV. I couldn’t have timed the switch more poorly. This was the first summer of record setting gas prices, when the pump price first climbed over $3.00 a gallon. Fair weather activists went to work that summer, sending out chain letters over email and myspace demanding a boycott of gasoline. Let’s boycott all gas stations for a day! Or better yet, let’s just boycott Exxon! That’ll show ’em!

After reading these, I (and anyone who had taken Econ 101) immediately were hit with terrible headaches. Why? These consumer gas schemes pandered more toward emotions than to any rational economics theory.

Now two years later, a similar situation is occurring. However, this headache isn’t being spread by zealous internet users. This fire is being fanned by two of our own presidential candidates. Their idea is not a boycott, but rather a “gas holiday” where the federal gas tax is erased for the summer driving months.

But wouldn’t lowering the gas price increase demand? And when demand increases, won’t the prices go back up? The short answer is Yes. Peter Schwartz of Global Business Network describes this as the true American energy policy: “Maximize demand, minimize supply and buy the rest from the people who hate us the most.”

Under such a scheme, consumers would see little change in gas prices this summer. Without taxes of course, our own Federal government’s revenue would shrink. And the real winners in the game would be….you guessed it….the big oil companies.

According to this article by Thomas Friedman of the NYT, “This is not an energy policy. This is money laundering: we borrow money from China and ship it to Saudi Arabia and take a little cut for ourselves as it goes through our gas tanks. What a way to build our country.”

Paul Krugman, another NYT columnist points out in a post that any attempt to quell gas prices for the summer driving season is too little, too late. The petro we’ll use this summer has already been extracted and refined. No matter what politicians will promise for the summer, there’s simply not much to be done.

Photo found at Huffington Post

My car gets 14 mpg on a good day and public transit isn’t an option for my commute. I’m sitting front and center in the cross hairs of high gas prices, and I would be ecstatic if there were a plan that could help me out. Unfortunately, there doesn’t seem to be much of a rationale consensus from our leaders. Of the three candidates, only Obama has voiced his disapproval of a gas holiday. Both McCain and Clinton have publicly favored this gas-tax holiday.

It’s time for our politicians to take a proactive and logical approach to our energy policy. All the research, rationale, and logic point to the same conclusion. It’s been close to 30 years since President Jimmy Carter proclaimed we would stop being dependent on foreign oil and that we would develop oil alternatives. Perhaps its time we began working toward this long-time goal.

Last week, I unwittingly got into a discussion with the folks from carbontax.org about BC’s new carbon tax. Most of the comments showed strong support for a carbon tax, but I was surprised that there was little support for encouraging fuel efficiencies. The collective mind seemed to think that a carbon tax was the only tool needed to curb carbon emissions. Now I doubt that specific mindset is a good representation of what most people believe, but it got me thinking. I agree a carbon tax is a great strategy, but is it the only one? Where does a carbon-tax fall short? Does encouraging fuel efficiency pick up the loose ends?

Pitfalls of a Carbon Tax

  • A carbon tax’s goal is to lower the miles people drive. But what about those who can’t reduce? Commercial truck drivers are one group of carbon-emitters that won’t be changing their habits because of a carbon tax. For transport companies, driving less means less business. Transport services may become a bit more expensive, and truck drivers may not see a pay raise for a while, but carbon emissions won’t drop substantially.
  • For any substantial change to happen, consumers need to notice consequences. However, most carbon taxes are modeled the same: taxes start off very small, and are slowly increased over time. By slowly, I mean about 10 cents a gallon slowly. Politicians are wary of pegging the tax too high, but adding an extra 10 cents a gallon tax is almost unnoticeable at today’s volatile gas pumps. For many, paying a bit extra at the pump is more convenient than changing their habits to be more environmentally friendly. It’ll take years before the tax is expensive enough to force a change in the average consumer. Even then, there will always be people rich enough and willing to pay to pollute. A carbon tax is a great long-term strategy, but doesn’t offer any short-term solutions.
  • Marijuana UseA carbon tax is one sided, as there are two basic ways to change someone’s habits. One way is through negative consequences, the other through positive incentives. Training animals (stern voice vs tasty treat) is one basic example. When it comes to carbon emissions, a carbon tax is a negative consequence. But negative consequences aren’t always enough to cause change. Take a look at marijuana use. Marijuana has been illegal in the US for decades…but the drug’s use hasn’t slowed. A balance of negative consequences and positive incentives is the most effective means of changing habits.

The Benefits of Fuel Efficiency

If a carbon tax is peanut butter, fuel efficiency is the jelly. The two strategies combined provide a balanced plan toward decreasing carbon emissions from fossil fuels.

  • Promoting fuel efficiency is the perfect short-term plan because it’s available now! The technology needed to reduce carbon outputs is already sitting on car lots. Burning carbon fuels more efficiently has the same effect as driving less. Right now, the big obstacle is getting fuel efficient vehicles into the hands of drivers. Once that problem is tackled, fuel efficiency could reduce carbon emissions in a very little amount of time.
  • mazda.jpgDollar for dollar, fuel efficiency has a bigger effect on consumers. BC’s carbon tax will cost a family about $50 a year. Driving a fuel efficient car could save that in a month or less. My personal situation: If I were to drive the hybrid version of my current auto, I’d save $50 in two weeks. That’s $2600 annually! When it comes to carbon, promoting fuel efficiency is more powerful simply because of the dollar amount attached. Additionally, fuel efficiency provides a positive incentive for emitters to change their habits. Wouldn’t you drive a hybrid if it meant saving hundreds every year?
  • Fuel efficiency can reach people that a carbon tax can’t. Truck drivers and commuters who can’t bike or bus can still lower their carbon emissions with better fuel efficient cars. The same can be said for people who travel in distances more than what is covered by a carbon-tax. Fuel efficiency works no matter where the fuel is bought and burned.

The bottom line is that both a carbon-tax and fuel efficiency incentives are working toward the same goal. The planet doesn’t care how carbon emissions are lowered, so long as it’s done quickly. Why limit our options? The best strategy is one that uses everything in our toolbox; be it a carbon-tax or promoting fuel efficiency.