Friday, April 09, 2004

A New Tradeoff?
Ever since taking the helm at Ford Motor Co., William Clay Ford has been a controversial figure. He has spoken publicly about a strong environmental agenda, although some have criticised Ford for failing to follow through. This week, he threw his support behind the idea of higher fuel taxes couples with incentives for high-efficiency vehicles such as hybrids.

The tradeoff between taxes on consumers and fleet mandates at the manufacturer level is one that was settled in the US two decades ago. Europe has chosen to rely on high fuel taxes and taxes on engine displacement as a way of keeping cars efficient and moderating their oil imports. That approach was rejected here in favor of the CAFE standards I discussed earlier in the week (see Monday's posting.) Perhaps the time has come to reopen this debate.

The advantage of taxes is that they allow the market--consumers--to select the makeup of the car fleet and avoid the kind of loopholes and gaming that mandates such as CAFE are prone to. However, with consumers already complaining about gasoline prices that have skyrocketed due to market factors, how would they welcome a $.50/gallon tax increase on top of this?

Even if Mr. Ford's remarks are somewhat self-serving, since Ford has invested in hybrid technology and is launching the hybrid version of its small Escape SUV this year, this is still a national conversation worth having.

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