Hooray for High Gas Prices

What exhortations to love Mother Nature and change your evil ways couldn’t do, what feel-good environmentalist legislation couldn’t do, higher prices are doing. I know it is surprising to some folks but markets and prices really do work. Americans are conserving and substituting, new technologies are becoming more affordable, people are changing their energy habits, and smaller homes and smaller cars are becoming more desirable.

Just listen to what people around you are saying about rising gas prices or read your local paper and it is hard to escape the fact that high prices are causing beneficial results. Here is a sampling of recent news stories:

· Gas cost deflates prices on used SUVs, USA Today 5/9/08. The price of big used SUVs has dropped 17% from a year ago.

· Planes Fly more, emit less greenhouse gas, USA Today 5/9/2008. Airlines have taken many steps to curb fuel use, such as adding better navigational equipment, modifying wings for improved aerodynamics. From 2000 to 2006 fuel efficiency increased 22%.

· Gas cost squeezes daily life, USA Today 5/9/2008. People are changing their habits. They are combining errands. “February was the forth consecutive month in which miles driven in the USA declined, the first time since 1979 that that has occurred.”

· Developer bets that home buyers trade space for energy efficiency, The Tennessean 5/12/2008. Developer Randy Chastain has been a developer in the Nashville market for 30 years. Cheep materials, cheep land, and cheep gas led to bigger and bigger houses with little thought to energy efficiency, says Mr. Chastain. He believes higher energy costs are changing the market. Now, he is building homes that are 10% smaller than what he was building and considerably more energy efficient. He is building LEED certified homes.

· Demand for gas eases slightly as more carpool. The Tennessean 5/1/2008. This article notes that carpooling is increasing. It interviews several people who have started carpooling.

This is not to suggest that we are wining the war for energy independence or reducing global warming. We are not. But, for the first time, we are headed in the right direction. For a while, it seemed that the demand for energy was inelastic. However, it seems that just shy of the $4.00 per gallon mark is proving to be the price point at which people will conserve and change behavior.

Perhaps more important than the price of gas is the expectation that gas prices will stay high. According to the Gallup poll, in August 2003 only 33% of the public believed high fuel prices would last. The latest Gallup poll shows 78% believe high gas prices are here to stay. If people expect prices to stay high, it will influence where they live, how they work, and the car they drive.

Unfortunately, pandering politicians of both parties are promising the public they will do something about high gas prices. Both Hillary Clinton and John McCain have advocated removing the federal gas tax for the summer. Some smooth talking, lying politicians, such as Nancy Pelosi, have to gall to advocate lower gas prices and combating global warming in the same sentence.

We do not need to reverse the progress that is being made on the energy and global warming front. What needs to happen in order to break the American oil addiction is for there to be still higher gas prices and a reinforcement of the idea that high prices are here to stay. To expedite what the market is already doing, a revenue-neutral carbon tax could put us on the right track to begin winning the war for energy independence and reversing global warming.

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