Wednesday, September 12, 2012

A comment on the new fuel efficiency standards

Dear Mr. Porter,

I appreciate the interesting article in today's Times in which you challenge the efficacy of the new fuel efficiency standards, but I have to take issue with the outdated argument that a domestic gas tax would more efficiently reduce consumption. Unfortunately, the Times does not allow for reader comments on Economic Scene articles, so I am sending this directly to you instead [and apparently posting it to my blog]. The crux of the counterargument is that since oil is now a truly global market, any reduction in US consumption caused by local factors (such as a domestic tax) would be offset by increased foreign consumption brought on by a lower global price (caused by lower US demand due to the higher domestic price).

At this point the only oil tax that would actually reduce consumption would have to be applied globally. Nevertheless, conservationists can look forward to the tax-like effect of what is likely to be a long-running trend of upward price pressure exerted by the rapidly growing middle class in Brazil, China, India and other emerging markets. In this context and contrary to the thrust of your article, raising domestic fuel efficiency standards (which in regulating the world's 2nd largest car market will likely improve standards globally) is perhaps the only effective unilateral action available to the Obama administration.

Yours truly,
Jake Tamarkin

p.s. For more on the effect of local oil taxes on global consumption, please see my blog post on a related article by the esteemed William Nordhaus: