Oil prices deserve to be higher: Economists are continually telling us that fossil fuels and polluting emissions are severely underpriced because their price does not include all the “external costs” such as health, ecological, and environmental effects. Thousands of Americans who live in Ohio, Pennsylvania, West Virginia, and other states where companies have discovered new natural-gas deposits buried deep within shale formations are encountering these “externalities” in the form of polluted water and, in some cases, the ability to light the water in their kitchen sinks on fire!
Many economists propose energy and emission taxes such as cap-and-trade as a way to price energy more accurately so that we would consume less and have fewer cases of pollution and related health problems.
Such taxes however, have three severe disadvantages. They are regressive, hurting the poor more than the rich. They cause inflation. And they give huge amounts of money to Washington to spend on boondoggles like bridges to nowhere.
All three problems can be reversed by the following simple and low-cost plan. Congress should enact a law that would put a fee (not a tax) on all fossil fuels and on easily measurable emissions starting six months in the future and increasing by increments every three months thereafter.
The fees could start at the equivalent of 25 cents per gallon for gasoline. No one, not even the president or the CEOs of large Wall Street banks, would be exempted. The fossil-fuel producers could pass along as much of the fees in increased prices as they wished. All the collected fees would be put into a trust fund.