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Are Gasoline Prices Too High?

By David Waight

The answer seems obvious. Of course prices are too high. Isn't $4.00 a gallon just price gouging by the oil companies in order to increase their profits at the expense of drivers? Shouldn't they be required to reduce gasoline prices to “responsible” levels? After all, driving is such a necessary part of our lifestyle. And, of course, there isn't another option.

At the risk of being labeled crazy, a heretic or even ignorant, I would argue that the price of gasoline is too low! Driving should be discouraged and exposed for its contribution to greenhouse gas pollution, its wasting of valuable land and fuel resources and its impact on congestion, accidents and noise pollution.

Contrary to the common assumption, there are frequently alternatives to the private automobile. Most cities in North America maintain extensive public transportation systems and non-urban and rural areas are increasingly offering service of various types, especially in areas popular with travelers.

gas price history

Bike paths and lanes are being constructed at increasing rates, providing a convenient and healthy car-free option. Tours are often an option when visiting destinations not directly served by public transportation or when you prefer the expertise of an experienced guide. Where these options are not available or feasible, it is still possible to use an automobile less frequently. Combining errands, car pools, ride sharing and walking are all options that reduce gasoline use and same money at the pump.

A significant portion of the cost of gasoline, in the form of taxes paid each time the tank is filled, is allocated to the Highway Trust Fund and to various state and local taxes. These taxes were originally designed to cover the full costs of highway construction and maintenance, but today cover only about half of these expenditures. According to US Department of Transportation statistics, the Highway Trust Fund collected almost $31 billion in user fees in 2008. In addition, $63 billion was collected by state and local governments for a total of $94 billion. Expenditures that year for highway construction and maintenance were $182 billion, leaving a deficit of $88 billion made up from other sources such as general fund appropriations, property taxes, investment income, bond proceeds and other miscellaneous taxes and fees. In effect, highways were subsidized $88 billion by federal, state and local governments.

In April 2011, the Congressional Budget Office released a report outlining an option under consideration which would tax drivers on the number of miles they drive (VMT) rather than, or in addition to, the current method of taxing by number of gallons purchased. The argument for VMT taxes starts with the fact that, especially for passenger vehicles, most costs of highway use are related to miles driven. In January 2011, combined federal and state fuel taxes were about 2 cents per mile for average passenger vehicles which just cover fuel-related costs. There are approximately 10 cents per mile in additional mileage related costs that under the current system must be covered by other revenue sources.

Fuel efficient cars, such as hybrid or electric, while a great improvement over the internal combustion engine, still require infrastructure such as highways and parking lots. They do a wonderful job in reducing greenhouse gas emissions and conserving scarce fuel resources, but under the current tax system contribute little towards the costs of highway construction and maintenance. VMT taxes would address this discrepancy.

A VMT system can be designed to be flexible depending on individual situations. For example, trucks and other heavy vehicles that take heavier tolls on highways would be taxed at a higher rate than passenger cars. Off peak driving would generate a lower tax than during rush hour improving efficiency by reducing congestion and fuel waste in addition to reducing demand for additional capacity. Areas without adequate public transportation or bicycle infrastructure would receive a tax credit until such services become available.

When the first commercial oil wells were drilled in the mid 19th century one could only imagine the many new uses that would be discovered for this product, such as plastics and most importantly the automobile, at that point only a remote idea in some inventor's mind. When oil was first discovered, it was used in lamps to provide light, as pitch to make boats waterproof and even as medicine. The invention of the automobile provided a new use for the vast new reserves being found throughout the world. As more oil was discovered, the amounts were so vast that it seemed almost unlimited. When they first came on the market, only the most well-to-do could afford to buy an automobile, so demand for gasoline was relatively low. It was unimaginable that these resources would ever be exhausted, at least not anytime in the foreseeable future.

Now, after barely one century, we are close to exhausting that “unlimited” fuel resource. In the industrial world today, especially the United States, almost every adult owns at least one car. It has become a “necessity” that most can't imagine living without. Car ownership in other parts of the world, traditionally much less common, has increased dramatically in recent years making scarcity even more imminent.

It has taken less than 200 years to almost exhaust the worlds oil reserves that required millions of years to create. It is gradually becoming evident that we have already passed the peak of oil discovery and that it will become harder to find new reserves, and those that are discovered will be more difficult to extract. Much of the recent discoveries are in inaccessible areas, such as deep underwater, in remote areas or embedded in tar sands.

One only has to look at the explosion and sinking of the “Deepwater Horizon” oil rig in the Gulf of Mexico and the resulting devastation of the nearby coastline as an example of the costs of deep water drilling.

Extracting oil located in remote areas requires new road construction, often through pristine natural areas. The Arctic National Wildlife Reserve in Alaska is being promoted as a rich new source of oil, but experts estimate that the available oil would only last about 6 months. Can 6 months of oil really justify destroying this valuable resource?

Bitumen from tar sands can be upgraded to synthetic crude oil and refined to make asphalt, gasoline and jet fuel. Its extraction costs, however are much higher than conventional drilling, less fuel is recovered, the environmental costs are higher and large amounts of water, also a scarce resource, are required.

In recent years, it has become obvious that we cannot continue to count on the private automobile as our primary method of transportation. The America public, however is so enamored by their love affair with cars that many see driving as a necessity with no alternative possible. Dramatic measures are necessary to emphasize the toll driving takes on society and to promote the available alternatives.

One of the best ways to discourage or reduce private automobile use is with higher gasoline costs. When gasoline prices increase, driving mileage drops. When it hits their pocketbook, Americans use public transportation, bike, walk or combine trips to save on gas costs. In Europe where “petrol” prices average twice that in North America, driving is much less popular. Of course they have the advantage of an extensive and reliable public transportation network and a bicycling and walking infrastructure that dwarfs that in North America.

Some would argue that since our infrastructure isn't as extensive or as efficient as in Europe, gasoline prices here need to be lower because automobile transportation is necessary for our mobility. A better argument would be to raise rates to provide the revenue needed to bring our transportation systems to the standards of that in Europe.

Others argue that oil company profits are at record levels so gasoline prices should be lower. The same people often say that subsidies and tax breaks for oil companies should be eliminated as record profits make them unnecessary. Subsidies and tax breaks for oil companies should be eliminated, but not to bring about lower gasoline prices. They should be eliminated because they are unnecessary and these funds could be better used elsewhere where the need is greater.

Some of us may live to see oil so scarce that only the most well-to-do people will be able to afford gasoline. With increases in oil scarcity, prices will increase to the point that current prices in Europe will look like a bargain. How many of us could afford to pay $20.00 for a gallon of gas? Some of the youngest of us may live to see oil completely exhausted.

Maybe I'm not so crazy after all. Greenhouse gas pollution, scarce fuel resources, congestion and highway costs are all topics that must be addressed and addressed now before they become catastrophic problems. They are almost at that point now so we don't have time to waste. Since the private automobile is the primary cause of these problems, the logical solution is to raise gas taxes to a point where they cover the full costs of highway construction and maintenance, traffic enforcement, pollution control and other related costs.

This will free resources to promote public transportation, bike lanes and clean energy. It would have the added bonus of providing an incentive for drivers to consider alternative transportation options.

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