Cheap oil? Now’s the time to raise gas prices

If you’ve been to the gas station recently you may have been surprised to see gas prices significantly lower than they have been in recent years. The price of oil is now $32 a barrel, down from a high of $136 in 2008. At the time, news stories told us this was the new normal, that high oil and gas prices were here to stay. But oil prices dropped and average gasoline prices are back below $2 a gallon (today’s national average is $1.82/gallon).

US and Seattle gas prices 5 year chart

(Sidebar: after a price war between gas stations in Michigan, the price of gas hit $0.47/ gallon)

US gas prices map

 

Even with low international oil prices, the gasoline prices in the United States are even lower than other countries due in part to subsidies to oil and gas companies. These subsidies come in the form of tax benefits and account for billions of dollars a year.

 

 

When gasoline prices are kept artificially low we drive more and there is less incentive to think about or act on transit-related climate issues like mass transit, bike infrastructure, or electric cars. The United States should take this era of low oil prices as an opportunity to wean oil companies off of unnecessary subsidies and tax breaks.

When gas prices are high, driving habits begin to change: as prices went up, driving went down, or at least drivers were more conscious of their gasoline consumption. To shift behavior and attitudes around driving, we need to raise gas prices.  With low gas prices, there is little financial disincentive to increased driving. But individuals don’t pay the full cost of driving: the externalities to society include pollution, global warming, noise, traffic and congested roads. Increasing gas prices would attribute a price to these societal costs and pass them on to the consumers who use the most gas.

As gas prices stayed high, we acclimated and it became the new normal. SUV sales declined and sales of hybrid and fuel-efficient cars increased. This era spurred national conversations about green technology and mass transit. Higher gas prices are a disincentive to driving that is felt directly by the consumer. This lead to widespread thinking about our movement patterns and transit systems. 

Increasing gas prices and ending subsidies will have benefits across society. Ending oil subsidies would indicate that the US no longer supports outdated and inefficient processes and instead that money could be used to invest in new, cleaner energy sources.

Ending oil subsidies will likely increase gas prices. Doing so when gasoline prices are already up could come as a shock to consumers. However, as consumers we were very recently accustomed to higher gas prices. Transitioning now when gas prices are already abnormally low would increase prices at the pump, but perhaps only to a level we were recently accustomed to. The time for action is now.

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