Why We Need Higher Gas Prices

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"It's not just a higher price we need, but a higher and certain price."

The "gasoline price roulette" we've experienced this year has not been a good thing for Americans–even as we now enjoy sub $2/gallon prices. Why not? Because, just as we were starting to adapt to the $4/gallon prices we saw in the peak of summer–by driving less and more efficiently, the larger forces of a deeper, world economy-wide recession started to bring gasoline prices quickly back down.

Since this fall, when gasoline prices started rapidly falling, gasoline demand has rebounded just as dramatically, wiping out nearly all of the early-fall decline, and U.S. gasoline production now fully matches its 2007 levels.

Which is why I think our country needs higher gasoline prices, assisted by government policies that would more appropriately "price" the external costs associated with the use of fossil fuels, such as through a carbon tax or cap-and-trade program. It's not just a higher price we need, but a higher and certain price.

I'm not talking about enacting and implementing a carbon tax now, in the midst of this awful recession. But I strongly agree with Resources for the Future's Richard Morgenstern, who recently argued (in The Hill newspaper) that the incoming Obama Administration must make an early and clear commitment to establishing a carbon-pricing policy that would take effect as soon as the economy begins to recover.

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