Can a Gas Tax Fuel Clean Energy Innovation?

With gas prices already reaching nearing $4 per gallon in many places, most business owners don’t relish the idea of them rising even further. Yet, some people are still calling for the government to deliberately increase them – by raising the gas tax.

gas tax

Scott Burgess, senior editor of AOL Autos, recently argued that a gas tax of $1 per gallon could help the U.S. government shore up its dismal balance sheet. Burgess cites a Congressional Budget Office report that came to the conclusion that more strict fuel efficiency standards will reduce gasoline consumption enough that the U.S. government will lose billions of dollars a year in tax revenue.

Add to the mix the fact that the 18.4-cents-per-gallon federal gasoline tax has risen since 1993 and it’s no longer enough to cover the transportation infrastructure improvements it’s supposed to fund.

That said, many small business advocacy groups, including the National Federal of Independent Business, are adamantly against raising taxes that directly hit small businesses, including the gas tax. A March survey by the Small Business and Entrepreneurship Council found that 72% of small business respondents said higher gas prices were already affecting their business. And stories abound in local media of businesses being pinched by surging gas prices.

(The U.S. Chamber of Commerce, somewhat surprisingly, has supported a modest increase in the gas tax in recent years order to improve U.S. infrastructure and lower the federal deficit.)

Tax and deficit issues aside, there’s another reason for business owners to think about the gas tax: Higher gas prices may help encourage clean energy innovation and support environmentally sustainable behaviors among business owners and consumers – such as the purchase and development of eco-friendlier vehicles and driving less. While it may raise business costs, it may spur business owners think about how to reduce their gas usage and be more sustainable.

Christopher Knittel, an energy economics professor at MIT, has studied how gas prices affect behaviors. He and researchers from Northwestern University found that a $1 increase in prices between 1998 and 2008 led people to buy 21% more fuel-efficient vehicles. (Not surprisingly, the CEO of General Motors has come out in support of a gas tax increase.) Knittel also found that less driving led to less local air pollution and related health problems.

So, what’s your view on raising the gas tax? Would it be a step in the right direction for the U.S.? Or is it just bad for business?

Gas Photo via Shutterstock


Kelly Spors Kelly Spors is a former small-business and entrepreneurship reporter and blogger for The Wall Street Journal who has also written for Yahoo!, Entrepreneur, NFIB's MyBusiness magazine and The New York Times. Kelly is now a freelance editor and writer based in Minneapolis and has previously managed communications for an environmental non-profit that helps businesses find ways to be greener.

3 Reactions
  1. According to me, raise in gas tax would be helpful as it decreases us dependency on foriegn oil…a
    higher gasoline tax would induce people to drive fewer miles and buy
    more fuel efficient cars. This would lead to less air pollution, less congestion, and safer roads.
    though it would place a greater burden on low-income
    households but overall this raise would be benificial to U.S.

  2. If gas prices are higher, the best way to get them down is to use less gas. If we took a break, car pooled, worked from home or other means, the demand would go down and so would the price. Just a thought. Makes sense to me.