Soaring Fuel Prices: Bane or Boon?

Last summer Americans had a taste of high fuel prices, and our driving habits and vehicle choices actually started to change. Substantially higher prices certainly would cause a lot of pain, particularly in the short term, but what benefits might we realize? Chris Steiner, Forbes columnist and author of $20 Per Gallon: How the Inevitable Rise in the Price of Gasoline Will Change Our Lives for the Better, explained in a recent NPR interview that dramatically higher prices could lead to a better way of living.

Steiner predicts that as fuel prices climb, we will become less of a disposable society, and migrate to denser, more interactive living arrangements. Air travel may not be economically viable for most of us, and travel by rail will grow in popularity (look at nations in Europe or Asia with high-speed rail infrastructure for examples). Other positive changes include more exercise in people-centered (as opposed to car-centered) communities, cleaner air, better (local) food, and improved health. And let’s not forget one of my favorite impacts: increased popularity of cycling.

In addition to environmental and health benefits, curbing petroleum consumption is a national security issue. This video features retired generals and others discussing a recent report from CNA that ‘explores the impact of America’s energy choices on our national security policies’. Vice Admiral Richard Truly, USN (Ret.), discussed the urgency of helping improve public knowledge about energy use, and the importance of resolving our energy situation. General Chuck Wald, USAF (Ret.), explained that Americans must realize that our energy situation is not going to take care of itself without us being a part of it. The link to national security alone could be motivation enough to take action.

The transition to higher fuel prices and lower consumption will certainly be painful, and hurt more for certain segments of the population than others. Should we wait for fuel prices to rise due to market forces and adapt then, or should we take some preemptive action to ease the transition? A phased-in fuel tax could be used to fund required infrastructure changes, as well as investments in technology that will enable us to enjoy a high standard of living on far less petroleum. Revenues could also be used to assist those struggling most with the transition to higher fuel prices. Instituting a U.S. fuel tax would funnel revenue into infrastructure and investments that benefit Americans, whereas waiting for market forces to drive up fuel prices will instead boost revenue for oil producers. Automakers actually support a fuel tax, hoping that it will stabilize fuel prices so they can invest in advanced technologies with more confidence in future demand for energy efficient vehicles. The main question here is not whether fuel prices will increase, but would we rather transition with foresight and a strategy, or just wait until we are forced into reacting. The former option would certainly be less painful, and would leave us in a much better position after the transition.

A strategic transition would require a substantial fuel tax (or a price floor), but this appears to be politically impossible right now. What do you think it would take for U.S. citizens to support an appropriate fuel tax?