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$6 dollar per gallon gas will help reduce America's dependence on fossil fuels - Peter Bell

America levies the lowest rate of tax on transportation fuel of any of the developed nations, which makes fuel a very cheap commodity for US consumers to buy. Higher fuel price levels would create the right market conditions for a rapid shift in consumption habits to occur and begin to eliminate America's dependence on foreign oil.

It would take a $4 dollar per gallon tax increase to make fuel available at European price levels of $5 to $6 dollars per gallon compared to the average US price at the pump of $2 per gallon today. Until fuel costs increase, it should not be surprising that American drivers are unconcerned that their vehicles obtain a low gas mileage performance. 

Selected World Gasoline Average Prices for September 2004
(prices include taxes and are listed in US gallons and US Dollars) *

Date Belgium France Germany Italy Netherlands United Kingdom U.S.A.
9/20/2004 5.06 4.95 5.43 5.32 5.88 5.50 2.05

* Information according to the Energy Information Administration, click link below for latest prices: http://www.eia.doe.gov/emeu/international/gas1.html

UK to US motoring cost comparison

An average US motorist will drive 12,000 miles per year and at the US fleet average of 23 miles per gallon, that average American motorist will use 520 gallons of fuel per year. This means that fuel costs the average American motorist approximately $1,050 per year or less than $100 per month.

If the European private vehicle fleet were to obtain the same mileage performance, then those same 12,000 miles would for example cost the average British motorist $2,800 per year or $230 dollars per month.   

Diesel Price in the US

At less than $100 per month no one notices the price of fuel

America’s lack of focus on fuel efficiency is a series of individual decisions made by American consumers that collectively results in mileage inefficiency not seen in any other developed nation's privately owned vehicle fleet. More expensive fuel would ensure that American consumers would spend more time and effort ensuring that they use fuel more efficiently.

If motoring costs the average American more than $200 per month in fuel, a change in the nation's consumption habits would occur all across the country very quickly.

America’s entrepreneurs would jump at the chance to provide consumers with solutions that enable them to get where they need to go, at prices they can afford to pay without any need to sacrifice their current standard of living. This change would occur at pace far more rapid than any government inspired scheme like CAFE could ever achieve.

Paying higher gas prices does not mean American’s have to suffer any change in lifestyle.

Less than 15% of the chemical energy contained in the fuel you put in your gas tank gets transmitted to the wheels of your vehicle, the rest of the energy is lost as shown in the diagram below:

 Vehicle Energy Losses

Our current inefficient use of energy in vehicles means that the potential to improve fuel economy is enormous. One of the keys to eliminating America's dependence on foreign oil rests on using more fuel efficient vehicles. By using more efficient vehicles we can still drive the same distances, in the same comfort, at the same level of performance and the same cost per mile as we enjoy today.

Reduce the amount of fossil fuel America uses and not the amount of traveling American's do.

Many scientific studies have been carried out that prove that automobile travel is inelastic, meaning that a percentage price change causes a proportionally smaller change in vehicle mileage.

For example, a 10% fuel price increase only reduces automobile use by about 1% in the short run and 3% over the medium run. Even a 50% fuel price increase, which seems huge to consumers, will generally only reduce vehicle mileage by about 5% in the short run. A 5% change is too small for most people to notice, although this will increase over time as consumers take the higher price into account in longer-term decisions, such as where to live or work.

Fuel prices are a poor indicator of the elasticity of driving, because over the long term consumers will purchase more fuel-efficient vehicles.

Fuel efficient vehicles are available today.

Mercedes-Benz E320 CDI

We do not have to wait for new technology to come to market as fuel efficient vehicles are available today. A great example of one of these vehicles is the diesel powered Mercedes-Benz E320 CDI. This diesel powered, luxury car can zoom from 0 to 60mph in 6.6 seconds, yet still return 37mpg on the highway. The engine is so smooth you don’t know you are driving a diesel and that performance is 10mpg or 35% better than the exact same vehicle powered by a gasoline engine.

If all vehicles in America were 35% more efficient, that would equate to more than all the oil we currently import from the middle east ...

Combine this improved fuel efficiency with displacing 20% of the gasoline we use with Ethanol, 20% of the diesel we use with Biodiesel and America would no longer need to import fossil fuels.

US

What can we do at the policy level to reduce our dependency on fossil fuel?  

We first need to recognize the importance of reducing the amount of petroleum based fuel we use in our economy.

Adding $400 billion per year in new foriegn debt is not sustainable Our requirement for oil is growing faster than our capacity to export American made goods in exchange for the oil we import. We currently import $400 billion dollars more of goods and services than we export each year.

Oil accounts for a big part of that differential, which is equivalent to $175 billion dollars per year of the America’s trade gap with the rest of the world, this situation can only continue for a finite amount of time. 

The inefficiency in our use of oil is hidden in the official statistics as each year it takes a smaller amount of oil to produce a dollar of GDP in the American economy, so it appears that our economy is becoming a more efficient user of oil as time goes by. What is actually happening is that the oil companies are finding more efficient ways to get oil out of the ground and into the market.

This masking is occurring due to the fact that since 1970 the real cost of fuel has not been rising as fast as our economy has been growing. All the while our actual importation has nearly doubled in that time frame, growing from 7 million barrels per day to the current level of 12 million barrels per day out of a total of 20 million barrels used per day. Click this link to get a more in depth look at US debt

A fossil fuel driven foreign and environmental policy is harmful to our long term interests.

American dependence on imported fossil fuels ensures that we have to keep operating a foreign policy that is alien to the true nature of the American people...

Compounding this foreign policy problem is that using 180 billion gallons of fossil fuel in vehicles per year is roughly the equivalent of flooding the entire state of Rhode Island 1 foot deep in fuel and setting it on fire each year.

Burning that much fossil fuel has to have an impact on our environment no matter which way you wish to spin it...

Once we recognize that reducing the amount of fossil fuel we use in vehicles is the most critical issue facing our nation today, we can get to work on both sides of the problem and start to close this fossil fuel import gap.

What do we mean by working on both ends of this problem?

First of all we need to start to displace the fossil fuels we do use with renewable fuels like, Ethanol for gasoline powered vehicles and Biodiesel in diesel engines. At the same time as we work on the supply side of this problem, we need to adopt the use of more fuel efficient vehicles so we use less fuel in total.

Oil used for transportation accounts for 2/3rds of the oil we use in America, with half of that being used in passenger cars and light trucks. Reducing the amount of fuel we use in our passenger cars and light trucks will have a major impact on the total amount of oil used in the American economy. 

With a focused effort on both ends of this problem, we see no reason why we could not eliminate our dependence on imported fossil fuels within a 10 year timeframe.

An American  renewable fuels strategy would enable the farm community to remain solvent without having to relay on tax payer subsidies.

Diverting $50 billion dollars per year of our fuel purchasing power from the world’s fossil fuel markets into American grown, renewable fuels like Ethanol and Biodiesel would reduce countries that want to do America harm ability to finance these kinds of activities.

This re-allocation of funds would divert the vast sums of money currently going abroad and bring those funds back into our farming community that is hanging on only with the support of the American tax payer.

Inefficient use of oil ensures the American economy is at a competitive disadvantage.

Oil Tanker

America is one of the few first world countries that has seen its oil consumption increase since the 1980’s in real volume terms. Most other first world countries have become more efficient users of oil and year on year reduce their actual consumption.

Using renewable fuels that are price protected by legislative support, might make our economy less efficient as motorists are not able to use the cheapest source of fuel available on the world market. However, using less fossil fuel will make the American economy more efficient and easily offset the slight inefficiency introduced by tax payer support of renewable fuels.     

A change in tax policy could eliminate America's dependence on foreign oil?

Tax increases on gasoline

Increasing the amount of tax on petroleum based fuels, and at the same time de-taxing renewable fuels like Biodiesel and Ethanol would enable renewable fuels to compete on price.

Removing tax payer support for fossil fuel is not a popular thing for a politician to champion as it would impact many Americans and be extremely visible. However, there is nothing unusual with higher levels of tax on fossil fuels as the real price of gas is more like the European prices of $5 to $6 dollars per gallon.

Increase taxes on fuel, reduce taxes elsewhere =  zero net cost to American motorists.

Politicians might not have the courage to increase fuel taxes, but if they do, they can sweeten the deal by offering to give the American motorist their money back in the form of tax relief. By increasing fuel taxes and reducing taxes collected elsewhere, the net effect on the American motorist can be zero.

A $4 dollar per gallon gas tax would raise $720 billion dollars a year and enable the elimination of personal income taxes in America. This fuel tax and its associated savings would replace the money the government raises each year via income taxes, $970 billion per year, less $250 billion in refunds.

This fuel tax would enable 130 million American tax filers to stop going through tax hell every spring and the concept of doing your taxes in April each year would become a distant memory. No other first world country imposes this filing burden on the majority of its citizenry and its elimination would save the American economy 2 billion man hours per year that the 16 hours each tax payer is estimated to spend filing their taxes each year represents.

Increasing the amount federal tax levied on fuel.

Increase taxes on fossil fuels, reduce taxes elsewhere.An increase in price can be done overnight by increasing the amount of Federal Tax each gallon of fuel incurs as this tax is already collected by the fuel distribution industry.

This way it becomes very easy to initiate a sea change in America towards a more efficient vehicle fleet as more expensive fuel will drive market change very quickly.

No big government program is required, no new department of Home Land Fuel Efficiency need be established, just a short bulletin from the IRS to the fuel supply industry and the entire American economy will value fuel efficiency much more highly than it does today.

Initiate fuel price increases at the state level.

National politicians could choose a less career altering way to implement the move to greater fuel efficiency by pushing off implementing fuel price increases down to the state level.

Click this link to see how we might do this in Texas using the vehicle registration Tax

By mandating that the states cannot charge a vehicle registration fee and insisting that this kind of revenue can only be generated through fuel taxes, national level politicians can take the high road on fuel efficiency and leave the dirty work of increasing taxes to the state politicians.

Click this link to see how we might do this in Texas by eliminating  the vehicle registration tax
 

What about low income, family and rural motorists ?

Increasing the amount of tax levied on fuel will hurt low income, large family and rural motorists disproportionately as it is a regressive tax. However, the goal of this initiative is to reduce the amount of fossil fuel America uses and not the amount of traveling American's do.

If we are to put more emphasis in our national tax regime on reducing fuel consumption, a safety net for low income motorists would need to be put in place as fuel consumption, not mobility needs to be discouraged. 

One example of a potential safety net system might be to make available, one time means tested vehicle replacement loans. These loans would enable low income motorists to purchase fuel efficient vehicles to replace their existing inefficient vehicles. Once the gas guzzler vehicle has been replaced, there is no financial impact on the low income motorist as they can travel at the same cost per mile in their new fuel efficient vehicle as they did previously in their gas guzzler.

These vehicle replacement grants could be funded by taxes levied on vehicles that do not meet CAFE standards for fuel efficiency, further discouraging the sale of gas guzzling vehicles in America.

Another of the stipulations of these vehicle replacement grants could be that they only be used to purchase American made vehicles. This would further stimulate the American automobile industry to become a leader in producing fuel efficient vehicles and take back this market share from the non-American car manufacture's that currently lead the way in fuel efficiency.  

Feebates.

If after all this info, high fuel taxes still do not work for you and are too much of a regressive tax structure, then a feebate system on the purchase of new cars working in combination with only slightly higher fuel taxes might be more palatable.

The idea of a feebate system is to add a higher tax to the less fuel efficient vehicle purchaser and a give cash back to the highly fuel efficient vehicle buyer. In this tax structure, the consumers of the top 25% gas guzzlers get taxed at a higher rate and the consumers of the 25% most fuel efficient vehicles get the cash back, the middle 50% are feebate neutral.

The feebate system is revenue neutral as the higher taxes are imposed on the lower fuel efficient vehicle buyer and those funds are used to fund the cash given back to the higher fuel efficient vehicle buyer. The feebate system is technology agnostic so suppliers can choose the way to offer fuel efficiency so market forces, rather bureaucrats choose the winners and losers. The feebate system is also self adjusting as fleet fuel efficiency increases over time.

The beauty of a feebate system is that it sends the price signal to the consumer upfront distorts the price of vehicles at the time of purchase while they can do something about it. This system sends the consumer a price signal that fuel efficiency is directly reflected in the purchase price of the vehicles they are considering and the market will start adopting fuel efficient vehicles over gas guzzlers.

The end results of implementing higher fuel prices will be worth the effort.

No mater how these fuel price increases are implemented, the effect of higher prices at the pump would result in a stunning reduction in the amount of fossil fuel America imports every year. This would have a positive effect on the national trade deficit and the reduction in pollution levels in our cities would be incredible. As a bonus, the pressure to undertake foreign policy "adventures" is likely to be greatly reduced and America's standing in the world restored.

What could happen using a combination of increased fuel efficency and renewable fuels

More detailed reports and counter arguments are available at these links:

- How Biofuels can help America's oil dependence – http://www.bio.org/ind/GrowingEnergy.pdf
- Agriculture’s Role in Ensuring U.S. Energy Independence - http://www.bio.org/ind/25x25.pdf

- A discussion on Gas Taxes - The Uneasy Case for Higher Gasoline Taxes By Ian W.H. Parry
- Chevron's Will You Join Us campaign - http://www.willyoujoinus.com
- A technical analysis of price to mile elasticity - http://www.vtpi.org/tdm/tdm11.htm#_Toc68662033
- A humorous take on lack of conservation - http://www.markfiore.com/animation/petro.html
 

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