It has been evident in the recent past that the price system is an effective way to address our current energy issues. We have been talking a good game on energy for several years, but it is not until prices increase that personal decisions start to change. Incentives matter. So, how about picking the low hanging fruit. Here are some common sense solutions to our energy crisis.
1) Take Makiw's advice. Increase the gas tax by $.10 per year for the next ten years. A gradual phase in gives consumer the assurance that gas prices will continue to increase so they can plan accordingly. We know that demand for gasoline tends to be relatively inelastic in the short run, but elasticity increases as time passes. As a result of increasing prices, we should see a continuation of the recent interest in fuel efficient cars. As consumer dollars flow to fuel efficient vehicles, producers will respond by competing to produce the most fuel efficient vehicles. Check out this article about a 65 mpg vehicle Ford will produce and sell in Europe, but won't be available in the U.S. because American consumers are not ready for diesel cars yet. Expensive gasoline will also make hybrids and electric cars more attractive.
2) Eliminate the ethanol subsidy. The subsidy is a wasteful example of rent seeking that warps the market for fuel as well as the market for food. Since the much touted benefits of ethanol are questionable (more likely doubtful), let it compete in the marketplace without the subsidy.
3) If you love the idea of ethanol, eliminate the tariff on imported ethanol. The Brazilians use sugar cane to produce ethanol. It is a more efficient process than using corn. Current protectionist policies to protect farmers make ethanol imports cost prohibitive. While this is still an energy import, it is from Brazil instead of Venezuela, Russia, Saudi Arabia, or Iran.
4) You wont find me chanting Drill Baby Drill, but I think we should allow more drilling on Federal lands than we currently do. Current technology allows drilling for oil without the environmental destruction of the past.
While more complicated proposals including CAFE standards tax incentives are being floated by politicians, I think markets may be able solve the problem more effectively though the gas tax.
Readers please feel free to make other suggestions in the comment section.
No comments:
Post a Comment