President Obama must be brave and impose a gas tax on Americans

US energy secretary Steven Chu’s claim that a gas tax is not politically feasible seems wrong on two fronts.

By Martin HutchinsonLast Updated: 12:07PM BST 29 May 2009

First, Obama has a big Congressional majority and sufficient support. Second, a gas tax would be a better way to fight climate change than new Corporate Average Fuel Economy standards and a “cap and trade” system.
True, politically, voters are allergic to new taxes. Thus President Barack Obama’s proposed “cap and trade” permits system and tighter emissions standards avoid taxing voters directly by imposing costs on energy companies and automobile manufacturers instead. From a budgetary standpoint, that’s money lost: a gas tax could greatly help deficit reduction. The Waxman-Markey cap-and-trade bill passed by the House Energy Committee last week produces little net revenue as 85pc of emission permits would be free.

The new auto emissions standards should improve gas mileage by about 40% after they take full effect in 2016, potentially reducing current US gasoline consumption from 140bn gallons annually to 100bn.
The long-term price elasticity of gasoline usage is quite high -- the mean of studies in several countries is around 70pc. Based on a conservative 50pc figure, a reduction in gasoline consumption from 140bn gallons to 100bn could be achieved by raising the gas price to $4.78 per gallon from the current $2.44 – still significantly below Europe.
On those estimates, a $2.34 Federal gasoline tax that produced that increase would yield $234bn per annum or $2.56tn over the 10-year Federal budgetary horizon, assuming 2pc inflation.
Higher gasoline taxes spread the burden of change around the economy, instead of imposing it on automobile manufacturers alone. Together with smaller automobiles, produced according to market demands, higher gas taxes would curb driving and pollution, increase public transport usage and spur innovation in urban development.
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