Thursday, October 20, 2005

Tackling Demand

With the US energy industry beginning what promises to be a long recovery from the Katrina/Rita double-whammy, it's worth reminding ourselves that, although supply problems have been a persistent feature of the oil market for the last couple years, it's largely the growth in demand that has landed us with $60 oil and a stretched global refining system. As Daniel Yergin of Cambridge Energy Research Associates has pointed out in recent op-eds, the current energy crisis is primarily a demand shock, not a supply shock such as we experienced in the 1970s. So while it's to important to address our overall supply of energy, the demand side of the equation is equally crucial.

There are lots of ways to reduce demand, most having to do with improving efficiency, but an increasing number of advocates are focusing on gasoline taxes. As I discovered last May, the decline in fuel economy attributable to the popularity of SUVs only explains part of the growth in US gasoline consumption. The steady increase in annual vehicle miles driven contributes significantly, as well. Shifting the way we use our cars turns out to be just as important as the kind of cars we drive, and the current diplomatic flap over the non-payment of the "congestion tax" by US embassy employees in London highlights a more focused alternative to higher gas taxes.

Many European cities have been plagued by terrible traffic for years. When I lived in London in the early 90s, a 10 mile commute could take 90 minutes, and things have gotten worse since then. Several cities in the EU have introduced congestion taxes, with drivers paying an extra charge for entering the downtown. Though hardly popular, these fees have helped improved traffic conditions in the City of London (the "square mile") and elsewhere. And while not primarily intended to reduce fuel consumption, congestion charges generate fuel savings not just for those who switch to mass transit, but also for those who spend less time stuck in gridlock. New technology may help with this, as well.

Before we hike the gasoline tax in this country (even if it's to fund Social Security private accounts, as recently proposed in the NY Times,) I'd like to know we've given more targeted measures such as tolls and congestion fees a fair try. This kind of approach also provides a useful perspective, in which our current fuel problems are revealed as only one aspect of the larger problem of overburdened infrastructure.

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