The Gas Tax: Too Much Too Soon?

The Gas Tax: Too Much Too Soon?

Last updated on December 18th, 2018 at 10:00 pm.

Think back to 2008. What comes to mind? If you’re like most Americans, your first thought was probably the mortgage crisis that largely contributed to the Great Recession.

You probably think of the rampant foreclosures on homes and high unemployment rates.

That makes sense given that housing and employment (or lack thereof) are probably the two most important factors with regard to an individual’s or family’s financial outlook.

This was not the best time for our country. Many people were out of a job for weeks, months, or even years.

Entire companies collapsed; people were forced out of their homes. Our country has experienced many ups and downs, but this was clearly one of the lowest points in recent memory.

However, another less-significant crisis also started around this time. One that we don’t often think about when remembering the Great Recession.

A Less Significant Crisis

One mini-crisis at this time that is less often recalled is the sudden and dramatic spike in gas prices. Using data from Trading Economics and setting our data range to “MAX,” 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, but 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.

Yes, prices did fall even more dramatically in 2015 than they had increased previously. But let’s talk about that roughly seven-year period in which gas prices were drastically higher than anything we’d ever seen.

What do you recall about American consumers’ buying habits back then, particularly when compared to today?

Maybe you remember, or maybe you suppressed that entire time period from memory. You probably wouldn’t be alone in having done so.

What happened is that people wanted smaller cars. They wanted more efficient cars. Simply put, they 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.


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I’m no expert on consumer behavior, but it seems to me that people respond to price increases. 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 relative to our own prices. We don’t buy gasoline in Germany, so for us, those prices are irrelevant.

This is a simple, yet powerful concept.

Reducing Emissions

Not too long ago, William Nordhaus and Paul Romer were awarded the Nobel Prize in economics.

This award was my inspiration for writing this piece. Or, more specifically, the work of William Nordhaus over the past several decades.

Dating all the way back to 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 is more effective at reducing greenhouse gases than, say, attempting to limit the number of gasoline-powered cars on the road.

And now, perhaps you can see how the very beginning of this post ties in. 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.

Consumer Behavior in a Struggling Economy

I know what you’re thinking: “I can’t afford higher gas prices!” or “I can’t afford a new (more efficient) car!”

I hear ya. And believe me – my goal is not to make anyone here broke. Quite the opposite, actually. But the issue we have on hand is much more complex than dollars and cents. You can imagine my inner turmoil as I attempt to reconcile reducing my big three expenses with my mission to leave behind a sustainable planet for future generations.

So for me, this is a bit of a dilemma.

Remember earlier when I talked about how, in 2009-2015, people were buying smaller, more fuel-efficient vehicles? Well, as you may have noticed, people went right back to buying bigger vehicles as the economy recovered.

I often pick on the Ford F-150, and this time I no exception. It’s just an easy point of reference. This graph, which I grabbed from, illustrates my point:


Takeaways from the above graph:

These are annual sales figures for the F-150. What I noticed is that there are many 800- and 900,000+ sales years riddled throughout this chart. But notice that from 2008-2015, these numbers didn’t break 800,000 even once – much lower, actually. As the economy slowly recovered, F-150 sales increased. And then in both 2016 and 2017, sales were over 800K. Very close to 900K in 2017.

Perhaps this is too simplistic, but there seems to be a correlation between these numbers and the economy that struggled for years. Many people struggled with money in 2008-2015. At the same time, gas prices spiked dramatically.

Thus, people wanted smaller, cheaper, more fuel-efficient vehicles. And that’s exactly what they bought. This is a trend that now, more than ever, we desperately need to bring back.

It’s not that I want a gas tax. But higher gas prices do influence consumer behavior. Nordhaus’s research supports this.

People, as a whole, are not likely to change their behavior simply because you tell them about climate change. No matter how many end-of-days scenarios you convey about melting ice sheets, people don’t respond until it becomes part of their daily lives.

When their wallets begin to lighten, they begin to listen. A gas tax does just that. Again, the goal is not to make people poorer; in fact, in the long run, the gas tax would not affect people’s wealth much overall. At least in theory.

Gas Tax 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). In short, Nordhaus posits 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.

One thing Nordhaus has examined is the Kyoto Protocol. As has typically been the case, 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 initiative is better than taking no action at all, focusing on the quantity of CO2 and other GHG emissions hasn’t been as effective as one would hope.

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 manmade global warming.

That is assuming you aren’t denying the idea of manmade climate change, of course. But if you aren’t in the same camp as flat-earthers and lunar landing conspiracy theorists, you probably aren’t doubting the legitimacy of manmade climate change.

And if you aren’t doubting the very idea that scientists are in agreement internationally on global warming, 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.

Catching the Bad Guys

The problem is that there are many issues with trying to limit the quantity of GHG emissions. For example, how are we going to proactively prevent people from driving vehicles with that emit too much CO2? Yes, there are ways to attempt this such as emissions tests.

But the thing about people is that there is never a guarantee they are going to change their behavior due to laws and regulations. In other words, we would have to enforce laws around acceptable levels of emissions. Police would constantly have to keep a lookout for these “problem” vehicles.

Now, I don’t know about you, but where I’m from, police have bigger fish to fry. And, indeed, I don’t think this is the best use of police resources. And, at the end of the day, it’s unlikely that enforcement would keep all problem vehicles off the road anyway.

Playing Catch Up

Think about the situation in France right now. People are protesting because they live in rural parts of the country, where car dependence is the reality and public transit is not.

Of course, for these people to simply buy new cars or to move to Paris may sound great, but many of them also have low incomes. So, neither of these options may really be viable.

And that’s not to mention the fact that the electric vehicle market may not be all the way “there” yet. In a perfect world, those living in rural areas with high gas prices would just buy an EV so they would never need gas.

But other than Teslas, long-range EVs are still a bit paltry in terms of how many options there are. And many of them are expensive, especially for those low-income people we talked about.

Where Do We Go From Here?

Personally, I like the gas tax – at least in theory. However, when you look at what’s happening in Paris – the city for which a major climate action initiative is named – it’s apparent that something isn’t right.

Based on the things I’ve heard the past few years, I believe what isn’t right is that, while it’s possible to move away from fossil fuels entirely, we just aren’t there yet. Almost, but not quite.

So, here are a few 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 charging. I love my Volt, but if its EV range is fully depleted, it takes roughly 15 hours to fully charge it at home. If I go to a public charger – which aren’t exactly everywhere – I can get that down to about four hours. Either way, this is a lot more time than it takes to fill up a gas tank. While EVs may never quite be as quick as fueling up, I’d like to see that gap narrowed a bit.
    • Better public charging infrastructure as well. As mentioned, chargers aren’t exactly all over the place. Even if there is a small fee to charge, that’s still better than no chargers nearby at all.
  • More EV options in general. Right now, there are only a few styles. While I’m not sure electric trucks would catch on, no such thing exists (excluding hybrids). If we’re going to see mass adoption, we need to see “mass-marketability.”

One Thing’s for Sure

And that is that climate change action is absolutely necessary at this point. The gas tax, in my opinion, is far from perfect today and I think more needs to happen to make it viable.

However, I think at some point in the future, becomes the best option. Maybe you agree, or maybe you don’t. Either way, we must change our behavior, and soon, if we’d like future generations to have a favorable climate in white to live.

Bob Haegele

Hey there. My name is Bob and I blog about personal finance here at The Frugal Fellow. In particular, I focus on topics related to student loans, investing, credit cards, and sometimes sustainability. Interested in starting a blog? Find out how to become a blogger!

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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