"$4/gal gasoline saw a dramatic turnaround in fuel demand."

But that was not a tax. That was market forces. Many thought the market force was 'speculators' and that the price might well go much higher before it went lower.

When a tax is imposed, there needs to be a rational for the size of the tax, not just punish users.

Of course, taxes are not popular. A tax that did nothing but raise the price of gas to $4/gal from current market price of ~$1.50/gal would not really do 'nothing' else. There would be a general revolt of the populace. With a plausible plan to transition to something else - maybe, just maybe a tax would be accepted. After all, we have been willing to pay a gas tax that is dedicated to road building and repair. I maintain that it was the link to a specific use that has made that tax somewhat OK.

We need actual alternative(s) to fossil fuels, and then subsidize the selling price of those alternative(s) in the market. Pay for the subsidy out of fossil fuel tax revenues.

That scheme won't work, because you will have congress trying to pick technology winners.

Also it won't work because the people who are paid out of fossil fuel tax revenues to produce "actual alternative(s)" will understand that their employment is on a fail-or-be-fired basis.

--- G.R.L. Cowan (How fire can be domesticated)

Robert;

Congress didn't choose the technology of our current nuclear power plants, and industry didn't do the choosing either. It was the predecessor to DOE or NRC, i.e. some bureaucrats and some scientists at national labs. Not a perfect system, but not nearly as bad as a pure Congressional sausage making.

Unsaid in my original post was that there needs to be some technical criteria for what qualifies as a true alternative to fossil fuel. Clearly, ethanol from corn needs to be severely handicapped. Had the selection been taken out of the hands of Congress this might have happened.

Also note that I expect the whole of the tax revenue is to be spent making the alternatives price competitive with taxed fossil fuel. And the money for the subsidy will come only from the fossil fuel tax and not from the general fund of the government. This places a sever limit on the tax rate and the subsidy rate. The actual volume of alternative fuel will be so small to start that it could be given a 90% subsidy without effecting the price of gas at the pump much at all.

Much later, when alternative fuel is a major fraction of the market, scarcity of fossil fuel will be causing the price of fossil fuel to rise even before the tax is applied. Eventually, fossil fuel will cost more than unsubsidized alternative fuel. The subsidy and the tax will be adjusted to 0% and fossil fuel will be a thing of the past, and there won't be a subsidy for motor fuel.

In this proposal, there is no choosing of technologies except on the basis of their fossil fuel content. Any technology that is truly a fuel and is truly not fossil, should earn the subsidy. If there are two alternative technologies, the subsidy is given to both. The lower cost
alternative will win in the market because it can be sold for less.

This is a Technocrat idea, but without the goofiness of trying to substitute some crazy energy/power unit for money. We don't know today how much the alternative to fossil fuel will cost in that future time.

I don't envision subsidizing electric vehicles, just fuels. I expect the price of fuels to rise enough that electric vehicles will become competitive merely because of the higher price of alternative fuels.

IMHO, Chu is a likely person to lead the bureaucrat-scientist team that does the analysis of candidate fuel technologies. Certainly we don't want an economist for leader.

Robert you might want to check up on the source for:

Now, three degrees Centigrade doesn’t seem a lot to you, that’s 11° F

Since 3C is 5.4F (not 11), something must have been misquoted somewhere along the line.

Incidentally a good post, and I am 99.7% in agreement with you here (misquotes notwithstanding).

There should be no magic number for a fuel tax rise that has some effect. I expect $.01/gallon would have roughly 1% the effect of $1.00/gal. It is already admitted that our federal gas tax is too low -it was set at $.18 decades ago, when that amount roughly paid for roadwork. But now we need several times that amount, if roadways are to be fully funded from the gastax. Add in a military intervention tax, of say $1.00/gallon. I could accept such a tax, which is actually market neutral (gas roughly paying its way). But gas taxes have been very successfully demagoged in the past, so I doubt Obama will risk proposing one.