Like it Or Not, We Need a Federal Gas Tax Increase

Like it Or Not, We Need a Federal Gas Tax Increase

The federal gas tax is a divisive issue. Some are staunch critics of it. But can a federal gas tax increase actually help? That’s what we’ll discuss here.

On Friday, June 28th, 2019, the south of France witnessed record-breaking heat. Temperatures surpassed a smoldering 110 °F (43.33 °C).

And yet, just a few months before, French people were demonstrating in yellow vest protests. They had several concerns, but the first was a gas tax increase.

Emmanuel Macron, the French president, was trying to help France do its part to help prevent climate change. The best way to reduce our dependence on oil is to make it expensive. It may sound a bit extreme, but it’s true.

The gas tax is not like emergency medical services. It’s a costly service, but no one thinks twice about it. A federal gas tax increase is more like cough syrup.

At first, it tastes terrible, but it will benefit you in the long run.

Heat Waves in India

India has been experiencing extreme heat waves. NPR reported that temps there soared to 120 °F in June.

Make no mistake: India is no frozen tundra. But the average high for June in New Dehli is 99 °F. So even for India, this heat wave has been extreme.

And the fallout hasn’t been too pleasant. According to the AFP, India’s high of 99 °F puts people at risk of heat exhaustion. Heat exhaustion occurs when the core body temperature is between 98.6 °F and 104 °F.

Heat exhaustion a dangerous, but not life-threatening illness.

However, the cutoff for heat exhaustion ends at 40 °C (104 °F). After that, it becomes fatal, as people will be at risk of heat stroke. And according to the NPR reporting, there has been a spike in heat-related deaths in India.

But that isn’t the only complication. India is also experiencing water shortages. Communal taps and reservoirs are drying up. People are now having to scramble to receive water delivered by tankers.

The chaos in India is only a small glimpse into what the effects of climate change may look like in the decades ahead. As the planet continues to warm, these problems will become common in many parts of the world.

Is Global Warming Real?

Let me be clear: weather and climate are not the same. But the planet is getting warmer. It’s not just a day here and there. According to the Union of Concerned Scientists:

The National Climatic Data Center (NCDC), which is part of the National Oceanic and Atmospheric Administration (NOAA), has maintained global average monthly and annual records of combined land and ocean surface temperatures for more than 130 years. These data show that temperatures have climbed to more than 1.8°F (1°C) above pre-industrial levels as of 2015, and the long-term global upward trend is clear and unambiguous.

And NASA lists numerous other signs such as warming oceans, shrinking ice sheets, and glacial retreat.

There is a huge amount of evidence that shows that the planet is warming. And that matters because climate change can have a huge impact on all of us.

What Are the Effects of Climate Change?

It’s difficult to fully predict all of the effects of climate change. However, we are already starting to see some impacts.

GlobalChange.gov lists many of the effects of climate change, particularly on humans. They include:

  • Temperature-related deaths
  • Extreme events
  • Water-related illness
  • Food Safety, distribution and nutrition

We are already seeing extreme events, such as the wildfires in Paradise.

And that’s only part of it. The World Wildlife Foundation says climate change has big implications for wildlife, too. Many animals are already being affected.

Those include polar bears, whales, elephants, pandas, and countless others.

Of course, climate change is not the only thing threatening animals. There is also habitat destruction due to farming, logging, poaching, and so on. But climate change plays a big role.

How to Reduce Climate Change

In 2018, William Nordhaus and Paul Romer were awarded the Nobel Prize in economics.

Since the 1970s, Nordhaus has fought tirelessly to persuade the federal government to help fight climate change. In doing so, he has primarily targeted fossil fuels.

Nordhaus has also conducted rather extensive research in hopes of accomplishing his rather lofty goal. What he found is that a gas tax increase is more effective at reducing greenhouse gases than attempting to limit the number of gasoline-powered cars on the road.

Taxes increase prices for consumers, and consumers respond to price increases.

When it comes to gas prices, this means looking for more efficient vehicles or, in some cases, perhaps ditching gas altogether.

A gas tax would likely move the needle further on this trend. But is it the right move today? That, I think, is the important question.

Gas Tax Increase vs. Quantity Controls

The focus of much of William Nordhaus’s research has been that of determining the most effective/efficient way to limit greenhouse gases (GHGs). Nordhaus says that while most initiatives thus far have focused on limiting the quantity of GHGs, it is more effective to limit GHGs by way of a gas tax increase.

One thing he examined is the Kyoto Protocol. This agreement focuses on limiting the amount of CO2 in the atmosphere. Within the agreement, each country has agreed to reduce CO2 emissions by a certain percentage.

While this is better than taking no action at all, focusing on the quantity of CO2 and other GHG emissions hasn’t been as very effective.

A federal gas tax increase may seem harsh, but it's quickly becoming necessary.
A federal gas tax increase may seem harsh, but it’s quickly becoming necessary.

Here’s the thing: limiting how much greenhouse gas we emit seems reasonable at first. After all, we know that greenhouse gases are the biggest contributors to man-made global warming.

Scientists widely agree on global warming. So it seems sensible to think that limiting how much greenhouse gas there is in the atmosphere would be the best way to quell this growing worldwide crisis.

The problem with simply saying “we will only have X emissions” is it doesn’t give us a strategy for actually doing so.

How a Federal Gas Tax Increase Can Help

What is the impact of oil prices on the economy? In particular, do higher gas prices influence consumer behavior? Here in the US, we have already seen that to be true.

The Great Recession brought on a sudden and dramatic spike in gas prices. Using data from Trading Economics, we can see how closely the increase coincided with the start of the recession:

Gas prices were on the rise for most of this 20-year period. However, no increase was as significant as the one that began in 2008.

That may have been no coincidence; in fact, some say there is a strong correlation between higher gas prices and recessions.

During that time, people wanted smaller cars. They wanted more efficient cars. Simply put, people wanted to pay less for gas.

And this happened despite the fact that gas prices in the US were still less than half of what they were in Germany, for example. And so, even if other countries are still paying a whole lot more than us, we respond when prices increase compared to what we were paying.

Because, as a rule, consumers are most concerned with price changes domestically. We don’t buy gasoline in Germany, so for us, those prices are irrelevant.

The Problem with Carbon Credits

What are carbon credits? In short, a carbon credit is a permit that allows countries to produce a certain amount of carbon. Some countries are allowed more credits than others. Credits can also be traded if some countries have a surplus.

The problem with credits is that there are many issues with trying to limit the quantity of GHG emissions. For example, how are we going to pro-actively prevent people from driving vehicles with that emit too much CO2?

Perhaps more importantly, allowing countries to trade carbon credits simply isn’t good enough. We need to be moving toward zero emissions globally. That is a huge undertaking, but emissions trading is counterproductive to that goal.

Federal Gas Tax Increase: Where Do We Go From Here?

Trading carbon and emissions credits is not good enough. That might be better than maintaining the status quo, though, which it seems many people want to do.

Instead, gas prices must increase. Many will not like this idea and some may even be vehemently against it. Unfortunately, most people won’t change their habits of their own volition.

In the mid-20th century, most households had at most one car, yet people still managed to get around. People learned to be more dependent on cars, and they can learn to be less dependent on them.

As we move into the 21st century, this will increasingly become a necessity.

Here are a few other things I think need to happen in the years and decades ahead:

  • Continued development of electric vehicles. Prices as a whole should fall, while electric range should increase. This is already happening, but it should continue further.
  • Better and faster electric vehicle charging. While electric vehicles can be charged at home, charging is generally slow.
  • More EV options in general. Right now, there are only a few styles. We other body styles, such as electric trucks.
  • More public transit projects. It may not be possible to build a metro in a city that is already developed, but viable public transit is a necessary part of reducing emissions.

A federal gas tax increase may not be the most attractive solution to climate change. However, it has become necessary.

We must change our behavior if we’d like future generations to have a favorable climate in which to live.

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Bob Haegele

Hey there. My name is Bob Haegele and I blog about personal finance here at The Frugal Fellow. I was raised in the Windy City, also known as Chicago. After working for a few years in the Midwest, I’ve bounced around to different parts of the country in my mission to become a full-blown digital nomad. I’m also an alternative energy and EV enthusiast and have recently become semi-vegetarian. Another thing I started doing recently? Dog walking. I’m now doing that as a side hustle and loving it! I’m now working toward financial independence making money via my own ventures. If you’d like to work together, send me an email.

This Post Has 4 Comments

  1. Interesting thoughts! I’m generally not in favor of a gas tax today. For many of the folks who can afford an F-150, I don’t think it particularly moves the dial that much (assuming other factors like the economy and unemployment rates are in good standing), and it would penalize a lot of people for whom the cost of a more efficient car just isn’t an option in the short term. I think for the transition to happen there needs to be more improvement in EV related technologies, as you list, and effective public transit options would go a long way as well.

    1. Yeah – I’m not sure if you have read some of the comments on Angela’s post on sustainability, but many expressed concerns about how it would hurt low-income people. I can’t deny that and I’m not sure what the best solution is in the short term. As I said, the things happening in France have been a real eye-opener for me. This isn’t something you can just change overnight. The problem is, we almost need to.

      1. Thanks, that was a good read. Agree – I don’t know what the right solution is either. I think the government being so closely tied to the oil lobby is one interesting concern systemically. Individually, as long as un-sustainables are still the easiest options, it’ll be hard for people to make immediate change. Not trying to sound fatalistic, but loads of people find it hard to stop eating certain foods to resolve personal health issues with direct symptoms, how can we expect them to change for the greater good and when the symptoms present more indirectly? This is not to say we shouldn’t try, of course. 🙂

        1. You are absolutely right about this. The current administration has attempted to roll back so many environmental regulations that it’s quite honestly disgusting. The one positive is that a lot of state governments are showing their support for alternative energy despite the feds’ discouraging behavior.

          Also, that is a great point about healthy eating habits. I might even be guilty of that myself sometimes!

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