Auto Manifesto

April 29, 2009

Minimum Fuel Price

There needs to be a minimum price on passenger car fuel with a modest quarterly escalation schedule and possibly a cap (lots of scope for unintentional consequences here), perhaps a cumulative 5 to 10 percent price increase per year phased in every
quarter to minimize disruptions due to step increases in price.

Here's why there should be a price "floor". It is the best way to reduce fuel consumption, bring some semblance of stability to the auto industry and the economy at large, and allow for greater innovation. Bill Ford and John McElroy (auto industry writer) are two supporters of such a policy.

Think about it. If auto manufacturers know for certain that fuel prices will be at least $x per gallon then they can plan for the longer term about what vehicles to develop instead of fretting excessively (and indecisively) on what product mix to
make.

The market will simply buy fewer vehicles with poor fuel economy as it does now, and shift to far more efficient alternatives which will be available because the manufacturers will have confidence that those vehicles will sell.

The market will also use those vehicles more judiciously. Regulating fuel economy (i.e. CAFE standards) misses the point and only addresses part of the issue. It doesn't address how cars are actually used: Miles driven, idling, lead-footed driving, etc. All that is dependent largely on fuel prices. When they are very high consumer behavior starts to change. They conserve more. Witness summer 2008.

That would drive down greenhouse gas emissions, reduce oil imports, help our trade deficit, and also reduce the flow of U.S. dollars to unfriendly countries.

The problem is no one can or is willing to do it politically. It would be unpopular - unless it was positioned not as a tax (stick) but as a benefit (carrot). The right course of action is often difficult.

We've all exercised our "rights" to cheap gas so much for so long we no longer have the freedom to enjoy it, thwarted at every turn by environmental, economic, and geopolitical costs. It's time to raise the price of fuel in line with these costs
so that we as a society have solid incentives to alter our wasteful behaviors.

Further, since government is notorious for wasting obscene amounts of money there need to be controls and restrictions in place to ensure funds raised from fuel taxes should only be used for infrastructure and transportation related initiatives.

These are admittedly very high hurdles but I believe that a Federally mandated minimum light vehicle fuel price program (not tax), properly administered, would be a huge boon to the auto industry and result in far better vehicle choices for
consumers.

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