Thursday, January 1, 2009

Fuel for Thought

Costlier Gas or Cheaper Hybrids?

New York Times columnist Tom Friedman is at it again, beseeching President-elect Obama to escalate the gas tax, with the goal of keeping gas prices in the neighborhood of $4 a gallon.

His reasoning is powerful. The only way Americans will switch to more fuel efficient cars is if gas prices are permanently high. If they go up and down, people will go back to buying automotive mastadons when gas prices drop, while hybrids will languish. This further weakens the U.S. position in relation to the Mideast, Russia and other oil-rich despots, while keeping fewer dollars in America. All the while spewing more greenhouse gases.

The only problem with Friedman’s idea is that Congress will never pass it. To betray the name of this blog and spout conventional wisdom, there are too many senators from states with too much wide open space. These senators will never vote for a tax that makes it more expensive to drive long distances. It’s doubtful that even senators or representatives from the smaller, more urban states would go along with this tax.

After all, it’s just downright un-American for the government to make driving more expensive. Never mind that the oil companies, both foreign and domestic, do it all the time.

Friedman writes, “I’ve wracked my brain trying to think of ways to retool America around clean-power technologies without a price signal — i.e., a tax — and there are no effective ones.”

Huh? Well I have one worth a try, especially since the federal government lately has no trouble giving away hundreds of billions of dollars: bigger tax credits for fuel efficient cars, with the credit pegged to the average price of gas as well as the mileage rating for each model.

The decision of most people to switch to hybrids is based on a desire to save money. When gas prices rise, it becomes more economical, and more rational, to buy a gas sipper. But hybrids are not inexpensive and neither are all-electric cars. And for the latter, you need to own another car if you have to travel between cities, such as from Portland to Eugene.

In recent years, you could receive up to a $3,400 tax credit for purchasing a new hybrid. These credits were phased out, however, as sales of each hybrid model passed 60,000. I'm not sure what the government's reasoning was on ending the credits after the early adopters bought in—after all, the price of these cars didn't go down appreciably.

Coming this year and next, there are new tax credits available for plug-in hybrids—up to $7,500 for the Chevy Volt. That credit is expected to bring the cost of this little car down to $32,500, which is still at least ten grand more than a new Honda Civic. The Prius plug-in will be eligible for at least a $4,000 tax credit.

Even with such generous credits, these cars are idle inventory on most car lots with gas at today's price. Short term—most Americans only think short term—it makes more sense to buy a comparable conventional car that gets around 20 to 25 miles per gallon and costs half as much.

The way to goose up sales when gas prices are low is to increase the tax credit, or offer some other kind of subsidy to buyers. Give each buyer of a Chevy Volt a $15,000 tax credit if the price of gas is $1.75 a gallon, as is the current average in Portland. But if gas goes up to $3 a gallon, drop the credit to that $7,500 level. At $4, maybe down to $1,000. At $4.50 or $5 per gallon, zip. At the $5 level, there's no need for a subsidy.

This should accomplish the same goals as Friedman's proposal to artificially prop up the price of gas, with the exception of raising a lot of money for the federal government. The feds could make up the lost tax revenue by fashioning a surtax on vehicles whose mileage ratings exceed a certain standard. Again, peg that surtax to the price of gas and also to the rate of guzzling.

Oh, sure, when gas prices are below two bucks and your car gets 70 mpg, you are going to drive more. There's a limit to how much more driving a person can do, however. Relatively few people will move further away from their jobs just because gas is cheap. Time still isn't cheap. I suppose the combination of cheap gas and highly efficient cars could bring back the teenage rituals of cruising Broadway and drag racing on 122nd.

Gas, however, won't remain cheap. We all know that. We just want to make sure that we can cope when it does. Me, I don't really care because I ride a bike most of the time.

Meanwhile, there's another take on cheap gas by the always unconventional Mark Morford, columnist for the San Francisco Chronicle, who thinks it's time to hit the road.

1 comment:

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