U.S. Energy Policy
Raising the MPG levels to reduce our oil demand

by
Peter Kordell, President
Slipka Financial Partners LLC

Oil companies are not going to voluntarily enact corporate policies that help us reduce our dependence on crude oil. It’s against their best interests.

Auto companies make most of their profits on big cars that use more gasoline. So there is not the incentive to move too quickly to build smaller vehicles unless they move to hybrids where they can have the best of both worlds.

The current government administration seems too connected to the oil companies to formulate a national policy that would help our nation reduce its addiction to oil. So it is going to be up to the people to force the issue.

This is an odd situation since the President has repeatedly said we are in a major war against terrorism. If that is true then where is the sacrifice required to win such a war. The only ones paying the price are the men and women fighting overseas, their families and loved ones, and the men and women in our police and fire departments here at home.

For most of the rest of us, it’s business as usual. It certainly isn’t like World War II when precious resources like steel, lumber, copper, and rubber were not readily available as everything went into the war effort.

Most families had victory gardens where they tried to grow their own produce so more could be sent overseas. Women left their homes to work in factories to take the place of the men who left to fight in the war. Taxes were raised, and wages and prices were frozen so we could pay for the effort to defeat fascism.

Today we are told we are in the fight of our life, yet we are not called to sacrifice. Instead the administration offers needless tax cuts which have unnecessarily ballooned our budget deficits. This has left us in a more difficult fiscal position to not only fight this war on terror, but to help us out of the next recession.

One sure way to help win this war on terror is to deprive the terrorist of the money flow that helps finance their effort. The vast majority of that money comes from oil. Oil at $70 per barrel puts state sponsors of terror, like Iran, in a much better position to support those causes. At $20 per barrel, they would barely be able to support their own economy, let alone terror networks.

Every month, we send $25-30 billion dollars of our money overseas for imported oil to nations that would either like to destroy us or like to see our economy collapse. We do this because our transportation system is structure in a way that depends on huge supplies of oil.   If we are to win the war on terror, then we must break our addiction to oil and become energy independent.

One solution I have is to raise the fuel standards in this country, not by government mandate, but by the power of consumer choice.  To do this we would determine a mean weighted average MPG (miles per gallon) for all vehicles sold in this country. This would mean that as many cars would be sold above the average as below. The government would then tax those automobiles that get less than the average MPG and pass that savings on to those that purchase vehicles that get greater than the average.

The tax would be graduated based on how much below the average it is. For example, if the average vehicle gets 22 miles per gallon in the city, then for every mile less the tax would increase by $100. So a vehicle that gets 21 miles to the gallon would be taxed $100 while a vehicle that gets 17 mpg would be taxed $500.

On the other side, if the mpg is 25, then the buyer would get a tax rebate of $300, and if they bought a hybrid that gets 50 mpg, then they would get a $2,800 payment.

Each year the government would recalculate the MPG for that year. I would also consider increasing the tax each year. So in year two, they might increase this tax to $125 per mile per gallon instead of $100.

Think about what this would accomplish. It would provide the incentive for consumers to switch to better performing cars. The tax is revenue neutral. It calls for sacrifice on the part of those who choose not to contribute to our effort to reduce our dependence on oil.

In case you are wondering who those people are, I checked the EPA’s Fuel Economy Guide for 2006 to see which vehicles get the lowest mileage. The vast majority are made by Audi, BMW, Mercedes, Jaguar, Porsche, Infiniti, and high end Chrysler & GM products. If you can afford these very high priced automobiles, then you can probably afford the tax. These vehicles are generally owned by upper income people, the very ones that benefited the most from the Bush tax cuts.

I don’t think this sacrifice is too much to ask. I would bet the populous would get behind this and demand better efficiency from our automakers. If the technology to produce these vehicles makes them more expensive, then the tax rebate will help give consumers the extra money to pay for it.

This is a grass roots solution that puts part of the responsibility for reducing our energy dependence in the hands of the people, who I believe are more than ready to do their part. We can’t force oil or automobile companies to change their reluctant ways, but we can give the consumer a tool that will cause the demand to rise for vehicles that make sense for this wartime environment. If auto companies can’t sell a poor performing vehicle, then they won’t build them.

If this policy were implemented, I would expect that each year the weighted mean average MPG will rise. It is possible that a car that gets a rebate today might pay a tax next year if this policy works the way I think it will, and that is what we need to have happen to win the war on terror.