Keep Gas Prices High

The war in Ukraine is a human tragedy.  We should all work to end it as quickly as possible to reduce human suffering on a mass scale.

That said, I'm struck by the incoherent response from the entire political class to the high gas prices that have resulted from the invasion two weeks ago.  

California Governor Gavin Newsom, who has long called climate change a crisis, is now calling to suspend a scheduled gas tax increase.  President Biden is clearly distancing himself from the high prices, (ineffectively) blaming them on Putin's actions.

What did progressive leaders believe would happen to gas prices if we actually followed their rhetoric to limit fossil fuels?  In what world is lower gas prices consistent with their climate change goals?

A better response would be to use the opportunity of the price shock to introduce a new floor on gas prices, while directly supporting the increased expense paid for by all Americans.  The policy could be revenue neutral by implementing a surplus tax on oil and gas producers.  

The average American spends $150 per month on gas.  Say the government announced the new floor on gas prices would be $6 per gallon, increasing annually with inflation.  

At the same time, they implemented a program to mail a physical check (not a tax credit, rebate or offset, an actual payment in the mail) to every American adult for that amount in the name of American Energy Independence.

The entire program would cost ~$50B a year.  That amount is less than the current profit pool for oil and gas companies, which would certainly increase with the $6 floor on consumer prices.    

The American Energy Independence Program would be paid by a oil and gas production tax.  The exact amount of the tax could be determined to initially make the companies breakeven - they make more money from high prices, but are taxed at higher rate.  Consumers are also revenue neutral - they pay more at the pump, but get the direct payment from the government to offset the increase.

The point of all these transfer payments is the long term incentive to move away from gas. Consumers will see the price at the pump, and consider driving less, or switching to EVs.  They get to keep the check either way, so any behavior shift is incremental cash in their pocket.

Producers too would to incentivized to change.  Set the gas tax rate to increase at 2x inflation, so every year while the price at the pump goes up by inflation, the tax goes up at twice that rate, making the industry less attractive for producers.

Such a scheme provides a clear long term economic incentive for consumers, producers, and others to shift behavior away from carbon intensive energy.  It seems the politics are at least possible, given Americans see checks in the mail.  Lobbying would be climate politics vs gas producers.   The Congressional calculus also gives a chance for Manchin to alleviate pressure from environmental left without taking on local costs (West Virginia coal is used for electricity, not gas, so constituent jobs are safe.  Taking a big step like this for gas would allow him to credibly argue we should see what happens to that market before addressing coal).

Keep Gas Prices High. Provide a bridge for consumers and industry to adapt to the new world.  Change incentives and allow innovation to reduce dependence on petro-Dictators, and lower carbon emissions.