This cartoon by Richard Thompson, from Dave Barry’s excellent Year in Review, reminds me that the “gasoline price roulette” we’ve experienced this year has not been a good thing for Americans–even as we now enjoy sub $2/gallon prices (and as my family’s just made the road trip from Virginia to Ohio).
Why not? Because just as we were starting to adapt to the $4/gallon prices we saw in the peak of summer–by driving less and more efficiently, shunning gas-guzzling SUVs, and getting on waiting lists for hybrids–the larger forces of a deeper, world-economy-wide recession started to bring gasoline prices quickly back down. And what happened? Check out the official data from the Energy Department’s Energy Information Administration. Here’s the plot of retail gasoline prices over the past couple years:
And here are the plots of U.S. gasoline production and gasoline demand, over the past year (the yellow and red segments; the blue line compares to same months last year):
The middle of the two graphs above show U.S. production (supply) and demand in July. That yellow line shows that both did not rise during the peak summer travel period but instead remained flat. (Contrast with the July-August period in 2007, the blue dotted line.) And in September-October of this year, both dropped off dramatically, further widening the decline from the prior year. But since this fall when gasoline prices started rapidly falling, gasoline demand has rebounded just as dramatically, wiping out nearly all of the early-fall decline, and U.S. gasoline production now fully matches its 2007 levels.
Which is why I think–and I’ve said this before–our country needs higher gasoline prices, assisted by government policies that would more appropriately “price” the external costs associated with the use of fossil fuels, such as through a carbon tax or cap-and-trade program. It’s not just a higher price we need, but a higher and certain price. And it’s not just us stupid, near-sighted American consumers who need to be forced into the better behavior of consuming gasoline more efficiently (conserving), but also the not-necessarily-stupid-but-profit-seeking, near-sighted Detroit automakers who need to be “incentivized” into the better behavior of producing more fuel-efficient technologies and vehicles.
I’m not talking about enacting and implementing a carbon tax now, in the midst of this awful recession. But I strongly agree with Resources for the Future’s Richard Morgenstern, who recently argued (in “The Hill” newspaper) that the incoming Obama Administration must make an early and clear commitment to establishing a carbon-pricing policy that would take effect as soon as the economy begins to recover:
Obama clearly supports reductions in oil consumption and an attack on global warming. But a chorus of voices wants him to set aside any significant initiatives in these areas while he struggles to pull the country out of recession. Green elements of the stimulus package, they believe, will provide sufficient push for low- and no-carbon technologies, thus obviating the need for early decisions on a cap-and-trade or other carbon-pricing regime. But announcing at the outset an explicit plan for carbon pricing is essential — for two reasons.
First, setting a carbon-pricing target would strongly signal to both business and consumers that new technologies must be developed and adopted without delay. Without that price incentive, the advent of greener forms of energy will be postponed yet again.
Second, setting a price on carbon emissions will assure a revenue stream to support future climate-related programs — and, quite possibly, other initiatives as well. The stimulus package cannot go on forever, and carbon revenues can give the federal government the wherewithal to fund future initiatives.
Opponents of an early announcement on carbon pricing say it may worsen the recession. The reality is that any such scheme cannot be implemented immediately, given the need to develop legislation and subsequent regulations…the president could propose an explicit mechanism to postpone implementation in the event certain economic conditions are not met…
[I]t is the best way to reduce uncertainty about U.S. climate policy. Without such directives, investors will continue to act as if carbon emissions are free…
A cap-and-trade system will put a price on those emissions, creating an incentive to develop and adopt more carbon-efficient technologies — much like the recent run-up in gasoline prices shifted consumer purchases in favor of fuel-efficient vehicles. As the economy rebounds, the expectation that an already enacted carbon-pricing scheme will soon kick in will trigger green investments. Early action could be further encouraged by distributing allowances — bankable for future use in a carbon-pricing program — to firms that reduce emissions prior to program implementation.
The way I see it is that one consumer’s gasoline bill is another automaker’s return on his green investment. Detroit isn’t going to “transform” just because the government goes “poof”–and isn’t likely to reform efficiently just because the government says “jump.”