Reduce Automobile Dependency, Not Fuel Taxes!
Wheel Life column - September 23, 2000
by Todd Litman and Suzanne Kort - Victoria Transport Policy Institute

Excessive driving must affect the brain. It makes people bad tempered, short-sighted and selfish. All the whining about high fuel prices is annoying enough, but now motorists want to pick our pockets with lower fuel taxes. That's bad public policy based on misguided consumer choices.

You, dear reader, are surely more sensible. Exercise stimulates brains, which is why cyclists and pedestrians think so much more clearly than those unfortunate autoholics.

For the last two decades, the real price of petroleum (taking into account inflation) has declined. Last year it reached the lowest level in history. Now that prices are returning to a more normal level, everybody who bought a gas guzzler is howling about their fuel costs. Well, duh!

These fuel price increases were predicted years ago (see "The End of Cheap Oil," Scientific American, March 1998). The only question was when the increases would start. Although prices will surely fluctuate, the long-term trend is up.

Which is why reducing fuel taxes would be so stupid. If we reduce fuel taxes now, what will we do next year when prices rise again? Consumers, truckers, farmers and industry need to take into account fuel price volatility: ups and downs. That means increasing energy efficiency rather than demanding more government subsidies.

Those who clamor for lower fuel prices want a handout instead of rational public policy. This reflects the root of the problem. Too many people think of themselves as consumers rather than citizens. Consumers are by definition selfish and never satisfied (check any economics textbook). Citizens, on the other hand, consider the tradeoffs that society must make, and care about the entire community.

We, too, want lower taxes. But why choose fuel taxes out of all the options? Any economist not employed by the oil industry will tell you that there are much better alternatives in terms of economic development, job creation, or equity.

Cutting fuel taxes increases fuel consumption, traffic congestion, traffic crashes and pollution. It discriminates against those of us who rely on alternative modes, such as cycling. It is equivalent to giving a government check to people in proportion to how much fuel they consume. In other words, it rewards waste.

For example, a 10c per litre tax reduction only saves our household about $60 annually, because we are fuel efficient. But a neighbor with two big automobiles driven 25,000 kms a year would save about $600. Why reward inefficient households with ten times the tax savings? It's simply unfair.

Everybody would benefit from lower taxes on income and investments. A study titled "Price It Right; Energy Pricing and Fundamental Tax Reform," published by the Alliance to Save Energy (www.ase.org) estimates that raising fuel taxes and reducing income taxes could increase national economic productivity by 7.7% and average household wealth by 5.5%, while reducing fossil-fuel use by 38%.

And don't think that a fuel tax reduction will be fully passed on to consumers. Petroleum producers will raise their wholesale prices to capture a portion of those savings, so lowering fuel taxes simply allows oil companies to increase profits.

Automobile travel is highly subsidized. A few years ago the Canadian Automobile Association published a report claiming that motorists repay governments for their roadway costs ("Automobiles in Canada; A Reality Check"). It's typical pressure-group propaganda designed to distort the truth. The study violated two basic principles of "highway cost responsibility" (the technical name for this type of analysis). It overstated roadway user fees by including all taxes, rather than just special vehicle taxes, and it understated costs by ignoring local government roadway expenditures.

Households that rely on alternative transportation provide hundreds of dollars a year worth of road and parking subsidies to their automobile dependent neighbors. Is this fair? No. Yet, what are motorists demanding? Even more subsidies! Like any addict, they are never satisfied.

Ironically, the "conservative" political parties are demanding fuel tax reductions loudest. But conservative means being careful and cautious with resources. Cutting taxes just to keep gas guzzlers affordable is anything but conservative: it is wasteful and unfair.

A far better response to higher fuel prices would be a comprehensive strategy to reduce petroleum dependency by increasing consumer choices and encouraging efficiency. This means cycling and pedestrian improvements, better transit service, and community design that reduces automobile dependency. Fuel taxes would increase, but taxes would decline on things that benefit society, such as employment, investment and efficiency.

Like any addiction, petroleum dependency is a difficult habit to kick. But, oh, it feels good to be free!