High Future Energy Prices Now, Please!

The Times reports from the Detroit auto show:

But the return of cheap gasoline has already dampened hybrid sales. Throughout the show, auto executives emphasized that stable fuel prices, or a coherent government energy policy, would help them anticipate what consumers would buy next. Because of wild swings in fuel prices, “Every six months we get called stupid for having the wrong products,” said Robert A. Lutz, G.M.’s vice chairman.

“Far be it for me to be the first auto executive to call for a gas tax,” Mr. Lutz said. “But right now, it’s like fighting obesity by requiring clothing manufacturers to make nothing but small sizes.”

Electric cars did generate the show’s central irony: the models that will most impress Detroit’s new overseers in Washington will also drag down the automakers’ bottom lines for several years.

The Post's Steven Mufson writes:

Goodness knows, President-elect Obama has his legislative hands full. Maybe that explains why he has taken the idea of increasing gasoline taxes off the table, saying that Americans had enough economic burdens at the moment. Nominees like Steven Chu, the Nobel Prize winning physicist who will become Energy Secretary, dutifully echoed Obama's view even though in Chu's case he has long supported higher fuel taxes.

But by failing to raise the gasoline tax, the president-elect risks complicating another problem: Fixing the U.S. automobile industry.

Here's the problem. Obama and leading members of Congress keep saying they want ailing automakers to make more fuel-efficient vehicles. But the automakers in the past made more money on the guzzlers; in the future, they will have trouble charging enough to make money on new cars using costly new technologies for plug-in or hybrid cars. So the car company of the future may be a money-losing operation, just like the car company of the present.

Raising the gasoline tax would increase consumer demand for more fuel-efficient vehicles. That could help automakers charge more for them and make more money on sales of plug-ins, hybrids or more efficient conventional engines. Not surprisingly, Ford and General Motors both belong to the U.S. Climate Action Partnership, which this week proposed a detailed blueprint for a cap-and-trade system for carbon dioxide emissions. Such a system would put a price on carbon and would effectively tax gasoline and all other fossil fuels.

After being burned last summer by sky-high gasoline prices, do Americans really need higher gasoline taxes to get them to buy fuel-efficient cars? Yes, actually. Americans have an astonishingly short memory about gasoline prices. Sales of the Toyota Prius have hit the skids now that gasoline prices are back below $2 a gallon. And sales of SUVs are relatively strong compared to many other models.

(Hat tip: Mankiw). The principle applies more broadly - the best way to induce investments in "green" technology would be policies that credibly ensure that the price of (non-renewable) energy will rise in the future, like a phased-in carbon tax. Done right, this could even have a positive effect on current investment by creating an incentive to replace inefficient equipment before the higher costs kick in. That is, a (future) tax increase could be a stimulus today... not to mention addressing a problem - global warming - that is ultimately far more serious than the recession.

Politically, it isn't an easy sell, but it should be less difficult now, in the wake of a fall in global energy prices, than it will be once they go back up. Chu's comments were not encouraging, but presumably a climate/energy proposal is in the works that will result, perhaps indirectly, in higher costs for transportation fuel. Still, I worry Matthew Yglesias may be right when he says: "my best guess is that Obama’s climate proposals are too ambitious to be enacted and too timid to avert catastrophe."

But if he's wrong, and we get the high energy prices we need, Bob Lutz has got me covered.