When Do Gasoline Sales Peak?

On Monday, I discussed why Tesla’s latest announcement was big. The electric carmaker said it planned a modification that would give its autos the ability to accelerate faster than cars that cost two to three times more and keep up with those that cost 10 to 20 times more. That’s an astonishing accomplishment. I made the supposition that if you squint, you can see the beginning of the end for gasoline-powered internal combustion engines. They won’t go away for a while, but they have a credible challenger in electric battery-powered vehicles.

Let’s assume for the moment that my wild-eyed speculation is correct. Play this out and it means that at some point in the future, sales of gasoline-powered automobiles will peak and begin to fall. This has enormous ramifications for the U.S. transportation grid, and the health of the American economy — and for anyone investing in energy or transportation and all the related industries.

We now pay for the maintenance and construction of our interstate highway system, bridges and tunnels — plus many state and local roads — through the Highway Trust fund. (We have discussed this before hereherehere and here). The Fund is financed by a gasoline tax that has been stuck in a time warp. The last time the tax was increased to keep up with the cost of construction and maintenance was in 1993, to 18.4 cents a gallon. But now the Trust fund is being starved of funding because the tax wasn’t indexed to inflation.  Adding to the strains is weather that has gotten worse for roads because of hotter summers and colder snowier winters.

A never-ending series of emergency measures and short-term fixes have kept the Fund afloat, but now it’s just about out of money.

Even the Senate’s proposed three-year agreement (which is still too little) will be a challenge to get through the House, which only is looking to extend federal highway spending to December.

Which brings us back to the rise of electric-battery vehicles. If my modest projections are right — half of all cars sold in the U.S. and Europe by 2035 will be either plug-ins or hybrid-electric — then the demand for gasoline is going to start falling. We don’t know when peak gasoline will occur, but even the most skeptical observer of the auto industry knows that gasoline sales are not likely to continue rising during the next century.

How about 50 years — can anyone legitimately make the case that gasoline sales are not going to peak at some point within the next five decades? It isn’t even a huge stretch to imagine a plateau beginning as soon as 2025.

Which brings us back to the issue of road maintenance: If my speculation is even remotely correct, the era when we finance highway construction and maintenance with a consumption tax is coming to an end. At some point in the not-too-distant future, gasoline sales won’t even have the potential (which they have today) to fund road maintenance. The aversion to tax increases now makes even the most rudimentary repairs difficult or impossible; in the future, the U.S. may not even have the option of turning to a gas tax increase because the sales base won’t be there.

The window is beginning to close on refinancing America’s debt at historically low interest rates. Make me your all-powerful benevolent king and I will float a $5 trillion, 50-year bond offering to rebuild the entire transportation infrastructure, from bridges to tunnels to highways, including technologically advancedcleanersmart roads. But short of that, doubling the gas tax to 37 cents and indexing it to inflation will keep the roads functional, allowing for the efficient transportation of goods around the nation.

Of all the taxes we love to hate, the gasoline tax is the most innocuous. It isn’t even a true tax, but a usage fee: The more you drive, the more goods you consume, the more you pay for the cost of the roads that make the modern U.S. economy possible.

The U.S. highway system, once the envy of the world, has become anational embarrassment. It’s long past time to change that.

 

 

Originally published as: Raise the Gas Tax Before It’s Too Late

 

 

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  1. DeDude commented on Jul 22

    Maybe we need to institute a value-based registration tax on all street legal vehicles. If electrical vehicles go mainstream then something in addition to taxing gas consumption will be needed.

  2. orsogrigio commented on Jul 22

    Seen from here, Europe, USA is a peculiar Country. I can’t find a sense on taxation of gasole to finance roads. The marginal utility for going from A to B is the same if you use a a Fiat 500 @40 mpg or a Jaguar XK @22 mpg: both need a decent, well paved safe road. The quality (and quantity) of highways is independent from the mpg of vehicles, depends only of the traffic needs and have to come to the same specifications (no holes, please, readable signs etc). Moreover there is one further point : may be I’ll need to go A to B twice a day, or once in year, bet when I need (or make my mind up to go) the highway has to be there. So to let me go A to B highway is a 24/7 service (available 24 hours a day, 7 days a week). The only reasonable way to have users pay for this is a yearly tax on the vehicle, that is on the subject of road use. Then politics (and budegts needs) will findo out how to divide the cost, but that’s the rationale. Of course, in this way of thinking, it doesn’t matter if you use a ic, electric, pneumatic, steam whatever engine. You need to go A to B and somebody builds the road for giving you THIS service. You pay the service, not the use.

  3. RW commented on Jul 22

    The gas tax was a straightforward utility-style solution but roads, like many forms of infrastructure generally, have a much wider range of economic beneficiaries than proximal users and its probably time to address that with more sophisticated and flexible models.

    For example, electric utilities are already beginning to balk (and lobby) because they claim residential/local solar installations are cutting into their revenue stream while requirements for maintaining the grid have not altered.

    • orsogrigio commented on Jul 22

      and they (electric utilities, I mean) are perfectly right, because, as highways or in general roads, grid is a 24/7 service with set specifications, so if use drops (and thus revenues as commodity), costs are the same (in the grid, are even higher, since the grid becomes unbalanced, and thus less efficient). I know that this is a most politically sensitive area, but, unfortunately, Nature doesn’t listen rethoric, I strongly suspect.

  4. JMH commented on Jul 22

    Peak gasoline sales is one thing, but what about peak auto sales? At some point, probably within 10 years, we will have fully autonomous vehicles transporting people and cargo. If a consumer can be part of a motor pool instead of owning a car, why sink so much capital into a vehicle that is idle most of the time instead of having it show up when you need it? In other words, Uber without human drivers. (No doubt their long term plan.)

    I can imagine more ride sharing, much more efficient use of roadways, and therefore a reduced need for infrastructure spending. Autonomous vehicles reduce the number of lanes required for transport and area for parking, too. Look at Google maps to compare the space taken by a mall parking lot with the actual retail space. The value proposition of substantially increasing efficient lane use and reducing the number of cars parked would make me hesitant to continue with infrastructure spending as we have in the past. There is a significant problem that has to be solved before we can get rid of our personal cars, however, and that is software security. How can we be certain autonomous vehicles can’t be hacked, or at least will not become dangerous if they are? Of course our current fleet has serious vulnerabilities, too:

    http://www.wired.com/2015/07/hackers-remotely-kill-jeep-highway/

    Infrastructure spending should include software security, too.

  5. J Kraus commented on Jul 22

    Peak gasoline sales won’t have to wait for widespread adoption of hybrid and electric vehicles. Between the fuel efficiency increases mandated by legislation in the U.S., the tightening carbon emission standards in the EU and the reduction of miles travelled in Europe and Japan due to population aging, I wouldn’t be too surprised if the developed world is not now at, or near peak. China and India are a different matter of course.

    Even in the U.S., aggregate miles driven may decrease as boomers, the generation that popularized the long-distance commute, retire. When I left the ranks of the toiling masses six years ago my driving dropped about 60%, even though my round-trip daily commute was all of six miles.

    As boomers slowly transition to the astral plane of Janis Joplin and Jimi Hendrix, miles travelled will drop even further as this is an important technology pivot generation. Some have embraced technology; others never have and never will. I shop and buy nearly everything from online retailers and have it delivered to my door without driving a single mile.

    I have friends and family members of the same age however, living in the outer suburbs that still spend all day mindlessly driving around and searching for elusive parking places just to perform the same tasks that I (and the majority of younger generations) manage to accomplish without rising from my chair. My sister even still drives weekly to a distant bank, an institution that I haven’t entered in thirty years.

  6. NoKidding commented on Jul 22

    Special taxes and fees for special purposes hides ordinary tax increases. Government revenue goes to government spending. Government at every level spends more than its revenue by increasing debt.

    I’ve lived in two states that instituted lotteries under to fund education. State and local taxes that funded education before didn’t go uncollected, they were spent elsewhere. Over time “all revenue” found ways to become “revenue” through debt issuance shell games.

    Study toll roads. Given, construction has to be funded with bonds. Tolls are justified to pay the bonds. What’s wrong? E.g. Massachusetts turnpike:
    1) The tolls repayed initial construction costs many, many times.
    2) Bonds were continuously rolled, so debt outstanding increased.
    3) Billion dollar bonds against the turnpike authority funded unrelated projects, most famously North Boston sections of Boston’s “Big Dig” … because the turnpike authority had a better credit rating than the state government.
    4) Tolls increased to service added debt.

    What’s the point? Western commuters pay every day to fund roads used by Northern commuters. Why is that so wrong? Beyond basic fairness, it exposes the lie. No government income is “special”. The whole d___ purpose of non-military government is to socialize the cost of net-beneficial projects and services that individuals won’t build for their neighbor’s benefit.

    If you think road taxes should be paid by road users, stop telling empty nesters to pay local taxes for schools. Cut federal income tax 50 percent for pacifists and isolationists. Reduce social security tax on heavy smokers (they won’t need it as long).

    It costs money to run a government. Lets try to be honest about how much and where it comes and goes.

    • DeDude commented on Jul 23

      I am all in favor or Nixon level tax rates getting 70% of the last earned dollar from the millionaires. Then we can skip a lot of user fees and still have the amount of money it takes to run society. Fact is that the more society develop the more expensive it gets to keep it up to date. However, some user fees have other purposes than simply cover cost. When you make it more expensive to do something that is harmful to society you also reduce that activity/harm.

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