ALT-1 Are High Fuel Prices necessary – Yes
Whether fuel prices are necessary or not depends on the definition of necessary. If it is simply a question of whether oil companies need to charge ever higher prices for the gas we use, the answer is a qualified no. Oil companies are making record profits and do not need higher prices to break even. Market forces are at work, however, and the captive consumer in oil consuming countries like the U.S and China will continue to pay the prices at the pump. Until there are realistic alternatives to our reliance on inefficient internal combustion engines, we will have to continue to pay what the oil companies charge. Ravenous demand is a wonderful thing when you are on the supply side.
If the question is whether higher prices are necessary to bring fuel efficiency and changes in habits, then the answer is a resounding yes. There is no better way to get consumers to seriously consider fuel efficiency when buying their next car. For every dollar per gallon that the price of fuel increases, the average driver will save another $500 per year by driving a 30mpg vehicle instead of a 15mpg vehicle. The same goes for carpooling several days a week. Higher gas prices are already focusing public attention on economy the way the discussion of greenhouse gases never did.
Back to supply and demand. As demand grows for fuel efficient vehicles, auto makers will begin to supply them. The average fuel economy for cars in the United States has not changed significantly since the Model T. Cars have advanced beyond Henry Ford's wildest dreams in the areas of speed, handling, reliability and comfort, but fuel economy has stayed the same. The simple fact is that more people have been interested in bigger and faster than smaller and more efficient. Times are changing, thanks in large part to the price of fuel.
Sadly, not everyone can put aside what's comfortable right now for what's good for the future. Senator John McCain has recently advocated repealing the gas tax between Memorial Day and Labor Day, a move that will cost the government $6.8 billion dollars in taxes. The savings are meant to send a little relief to the consumer. In doing so, they will also negate some of the effects that higher gas prices are now producing.
The government should instead consider devoting that $6.8 billion to subsidizing fuel efficient vehicle purchases, in addition to tax breaks that already exist. Even if every new car purchased during the summer were eligible, it would still average out to over $1500 per vehicle. An extra $1500 off the price of any vehicle averaging over 30mpg would be even further incentive for consumers to consider economy first when buying a new vehicle. People who trade in a gas guzzler would save money, car sales would increase and oil consumption would decrease. Furthermore, there could also be a tax break to the auto makers for even more efficient cars, say 40mpg or more. If we could make gas sippers more profitable than guzzlers we would see even more effort in research and development.
The price of a gallon of gas has not kept pace with inflation since the day of the Model T and neither has the demand for fuel efficiency. If gas prices begin to spiral ever higher, maybe we will indeed see supply and demand work to the benefit of the consumer and the world that we live in for a change.
