Trucks at Work
Taxing fuel

Taxing fuel

The President has consistently opposed raising the gas tax.” –Transportation Secretary Ray LaHood, during the question and answer session following a speech in Houston last week.

I’ve got a mild suggestion here: that we ditch all this nonsense about “cap-and-trade” and other ballyhooed efforts to reshape U.S. energy policy to focus instead on doing one, simple thing – putting a big tax on diesel and gasoline. And I mean BIG; raising the “floor price” for both (via taxes) to somewhere in the neighborhood of $7 to $8 a gallon.

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Now, truckers can rightly complain that such a tax would be a burden on their business as truckers are not “discretionary” users of fuel, in the words of Bill Graves, president and CEO of the American Trucking Associations (ATA). That’s one reason the trade group is so vehemently opposed to the American Power Act – the climate change bill introduced this week by Senators John Kerry (D-MA) and Joe Lieberman (I-CT).

But look – such a burden would be only temporary as truckers large and small would adjust their rates quickly to compensate for the higher price of fuel. Furthermore, with fuel prices “fixed” at a steady (albeit high) level, the industry would – for the first time in … forever – get fuel cost consistency.

THAT, in my opinion, has been the central problem fuel creates for trucking’s bottom line – the price jumps all over the place, meaning truckers need to keep altering their business model in order to manage fluctuations in what’s the second largest operating cost on their ledger books.

Another issue is even more basic: all attempts to reduce oil consumption in the U.S. over the last 30 years have been an abysmal failure – except for one. Only when oil prices surpassed $145 per barrel in 2008, leading to $4 per gallon gasoline and $5 diesel per gallon diesel across the U.S., did oil consumption – especially in terms of imports – drop.

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According to the Energy Information Administration (EIA), the U.S. imported 57.9% of its oil in the first quarter of 2008, down from 58.2% over the same period in 2007. Yet that 3/10ths of 1% marks the first time that this country reduced oil imports – ever.

Vehicle miles travelled (VMT) also went down for the first time ever due to the fuel price spike of 2008. The Federal Highway Administration (FHWA) reports that since the mid 1990s, highway travel in the nation grew just under 12%, from 2.4 trillion VMT in 1995 to over 3 trillion VMT in 2007. Yet due to record high fuel prices and the decline of the U.S. economy, slipped to 2.9 trillion by late 2008.

Here’s another thing – when you reduce fuel use, you lower greenhouse gas (GHG) emissions. It’s a very simple relationship (one made unnecessarily complex by the current “cap-and-trade” scheme) between carbon dioxide (CO2) reductions and reduced fuel consumption … and a fuel tax would be the easiest way to encourage that.

Then consider this – no longer would we need to come up with tax credit and subsidy schemes to encourage production of ethanol and biodiesel, much less hybrid and all-electric vehicles as well as those powered by natural gas or propane. Everyone would want one of those – just witness the stampede that occurring in 2008 for hybrids as drivers sought to ditch bigger, fuel gulping vehicles.

Even veterans of the automotive world recognize that a fuel tax might be the only way to create a sustainable market for the kids of vehicles the U.S. government demands automakers produce, yet few people buy.

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“If the rise in gasoline prices is gradual, I think that all of us in the industry would frankly welcome that. Because there is nothing more illogical than forcing fuel-saving technology when gasoline is extremely cheap,” noted Bob Lutz, former vice chairman of General Motors, during a speech at the 2010 North American International Auto Show in January this year.

“A gradual and, more importantly, expected increase in fuel prices would prompt smart car buying,” he stressed. “Because every time gas prices go back down, everybody starts buying big stuff again. Then gas prices go up a buck, the big stuff is unsellable and everyone wants small cars.”

Then funny thing is, neither the Obama Administration nor Congress want to consider a gas tax at all. Transportation Secretary Ray LaHood stated again last week that the President has no interest in any such policy, and House Speaker Nancy Pelosi (D-CA) also dismissed the idea in a speech back at the auto show as well.

Yet at the end of the day, it’s my belief that the trucking industry could manage a straight-up fuel tax hike much better than the various costs hits delivered by cap-and-trade legislation. ATA lays out a good case as to why that is so.

“Part of our concern is that with this cap and tax bill, trucking companies are being asked to pay for the reduction of carbon output three times over,” noted ATA’s Graves said. “The first payment will take the form of equipment cost increases for large truck fuel efficiency regulations. The second will be an increase in excise fees we pay into the Highway Trust Fund as the cost of trucks and tires rise under this legislation. And the third will be the enormous hidden fuel taxes that result from the Kerry-Lieberman bill.”

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It’s interesting to note that the “climate change” bill offers incentives to trucking companies for converting from diesel trucks to natural gas trucks. ATA believes these incentives will be attractive to only a small number of companies with dedicated, short-distance operations, noting that these incentives are also insufficient to ensure the build-out of a competitive natural gas refueling infrastructure.

But if you boost the cost of diesel, fuels like natural gas suddenly become way more competitive – and thus market forces, not government regulators, take over.

That’s why I think, at least, a straight-up boost to the fuel tax is the better way to go in terms of focusing U.S. energy policy on reducing oil consumption.