Tuesday, June 10, 2008

A Gas Price Fix That (maybe) Makes Some Sense

I've said that I want gas prices to stay high to give us motivation to change our habits. The problem with the current situation is that we are sending lots of extra money to oil producing countries via the high price of oil, rather than keeping it here via an increased gas tax.

Here's an idea that I'm not sure is a good one: eliminate the tariff on ethanol imports. Currently, we impose a tariff of 54 cents per gallon and 2.5% on imported ethanol. Unlike domestic ethanol, the stuff from overseas, especially Brazil, is made from sugar and its byproducts. The difference is critical, because ethanol made in Brazil is both economically and environmentally sustainable. (well at least more environmentally sustainable than corn ethanol or crude oil)

By contrast, ethanol made here gets a 51 cent per gallon subsidy. In other words, all things being equal, imported ethanol costs about $1 per gallon less than domestic ethanol. And since ethanol makes up about 10% of our gasoline, that is significant.

On the other hand, that would likely lower the price of gas at the pump, which, as you know, I think is a bad idea.

So here's an idea, kill the tariff, but enact a tax increase on gas that will be phased in. The idea would be to temporarily reduce the price of gas by doing away with a stupid tariff, but increase the price at the pump more gradually and predictably.

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