Tepper School economist Lester Lave argues in this commentary that U.S. energy policy should focus on greatly reducing or ending the nation's reliance on imported oil. Such a policy would also help bankrupt terrorists who are bankrolled with oil dollars, Lave says.
His analysis indicates that despite the recent run-up in oil prices, the real cost of oil is more than $200 a barrel. Lave says this truer cost of oil should be communicated to the market with a gasoline tax that raises gas to about $7.00 a gallon - reducing demand and helping to break America’s dangerous addiction to oil.
He acknowledges a tax would be unpopular, but he believes it would stimulate the U.S. economy, adding nearly $500 billion to federal coffers - funds that could be used to eliminate the payroll tax on the first $20,000 of income, providing a boost to America's poorer families. He also urges carmakers to advertise the lifetime cost of fuel consumption to help consumers make more informed choices.
Lave is the Harry B. and James H. Higgins Professor of Economics and University Professor, director of the Carnegie Mellon Green Design Institute and co-director of the Carnegie Mellon Electricity Industry Center.