Credit system would ease oil dependence
The countdown has begun- Monday is Memorial Day. Sadly, few will be memorializing those who died in military service, while many students will celebrate by getting away for a long weekend.
In fact, Memorial Day has become a summer rite of passage. According to the American Automobile Association (AAA), some 37.6 million Americans – up 1 percent from last year – are planning to travel 50 miles or more this holiday weekend. So despite all the uproar about gas prices – which have increased 70 cents per gallon since Feb. 24 – consumers aren’t altering their travel plans very much.
Remember all that political posturing up on Capitol Hill alleging price gouging, renewing calls for a windfall profits tax and a silly proposal to provide $100 rebates to offset high fuel prices? Well, a schizophrenic, election-year Congress has left those allegations and proposals behind until the next time higher gas prices dominate the news.
But that doesn’t mean the growing problem of the nation’s addiction to oil doesn’t still exist. As Sen. Richard Lugar (R-Ind.) stated at a Brookings Institute speech in March, “With less than 5 percent of the world’s population, the United States consumes 25 percent of its oil.”
Add to that addiction the political instability in oil-producing nations such as Nigeria, Venezuela, Iran and Iraq, growing demand in India and China and crude oil prices now hover around $70 a barrel. So, what should be done?
Foreign energy dependence is a complex problem that doesn’t have an easy or short-term fix. That is why $100 rebate checks, drilling off the coast of Florida or in the Artic National Wildlife Reserve (ANWR) doesn’t make sense. These would do nothing to get us away from dependency on fossil fuels and could increase usage if the perception is that the problems have been solved.
A more practical idea is for President George W. Bush to call for a 21st-century Manhattan Project focused on alternative fuel sources. Every American must be as resolved as when the nation engaged in the space race after the Soviet launch of Sputnik. Creativity and ingenuity are needed on a grand scale to lessen U.S. dependence on foreign oil.
But admittedly, such a lofty program would be slow to get off the ground due to political infighting and incessant budget battles. So what can be done now?
Americans should harness those market forces of supply and demand to reign in gasoline consumption while seeking long-term energy solutions. New York Times columnist Thomas L. Friedman advocates an increase in the gasoline tax so the price of gas would be between $3.50 and $4.00 a gallon, but that doesn’t make sense. Simply increasing the tax would be regressive in nature, harming those with lower incomes who are more likely to already drive more fuel-efficient cars out of necessity.
What’s really needed are gasoline credits. Every driver would be given an annual credit representative of a given level of gasoline consumption. Those drivers who don’t utilize all their credits for whatever reason would be able to sell those credits to other drivers, thus allowing people to choose whether it’s worth the additional cost to own a gas guzzler.
The market will drive the price of these credits and, as the nation attempts to wean itself off foreign oil, the supply of credits could be decreased, thus raising prices. Eventually it would not be affordable to drive a vehicle like a Hummer or Excursion simply because one wants to have the biggest and shiniest car on the road.
This type of credit system is already utilized to attempt to decrease pollution emissions in Europe. It is known as the European Union Emissions Trading Scheme (ETS), and while it has not been entirely effective, it has shown – as the Economist reported – that “markets need to be part of a scheme that has been well designed.” In other words, the devil is in the details.
Such a plan may be difficult to initiate, but it addresses the need for short-term measures until a long-term breakthrough is achieved. But following the status quo in energy policy only ensures higher gas prices and fewer affordable choices for future Memorial Day weekends.
Aaron Hill is a senior majoring in economics.