Gas Tax Redux

A few months ago, I posted a couple of times on my preference for a gas tax compared to the CAFE standards. Today, I happened across two papers by Professor Jayanta Sen that are, at the very least, quite provocative. They focus on ways that the U.S. could make itself better off by (in the first paper) taxing an imported good that has a relatively inelastic supply and by (in the second paper) forming an international cartel of importing countries, to offset the market power of OPEC. Here are the abstracts, with links to the full papers at SSRN:

A Tax to Save the US $100 billion a Year and Solve Global Warming?

The position of the current US administration is that moves to reduce consumption of gas (like the Kyoto Treaty), will harm the US economy. On the contrary I show that a tax on crude would transfer wealth of $100+ billion a year from foreign governments to the US consumers, thus providing a major economic stimulus to the economy while at the same time reducing consumption of gas. Over the past decade crude oil prices have increased from $12 (1998) to over $65 a barrel. The amount of net oil exported to [by] importing countries is about 28 million barrels a day. With 1998 prices as a reference, this translates to an additional wealth transfer of $1.32 billion a day, or $480 billion a year. If the supply of oil is inelastic, then an increase in tax by the governments of importing countries would push up oil prices and decrease the wealth transfer. For a range of demand and supply elasticities that I study, the wealth transfer savings for the United States (which has about one-third of global oil imports) should be in the range of $108 to $152 billion a year. The new tax revenues to the US government from tax on imported oil should be $160 billion to $250 billion a year. This money can be returned to the US consumers as a lump sum, thus providing the economic stimulus. The reduction in crude oil consumption ranges from 7.13% to 10.30% while providing a stimulus (defined as additional purchasing power to consumers) to the economy of $95 billion to $133 billion a year.

Oil at $10 a Barrel and $200 Billion Savings a Year for the U.S.: Benefits to the U.S. from a Buyer's Cartel

In the international oil market, the producers are cartelized, whereas the buyers are fragmented. As standard economic analysis suggests, this results in a greater share of the surplus for the producers. The cost of production for a barrel of oil to the producers is approximately $8, whereas the recent price is $65. A buyer's cartel could be formed by the governments of the major oil importing countries like the U.S., Japan, Germany, China, India etc. All oil sold in these countries would have to pass through the buyer's cartel. The buyer's cartel could negotiate a price with the oil exporting countries, say $10 a barrel (which should be a sufficient markup over production costs). After purchasing oil from the producing countries, the buyer's cartel would release the oil in the market and let demand determine the price. If current demand conditions remain unchanged then the price would still remain at $65. However, this would reduce the effective price to the citizens of the importing countries to $10 a barrel as their governments would earn a profit of $55, which could be used to reduce taxes or pay for programs like Social Security. For the U.S. (which imports 10 million barrels a day) the savings would be $55 x 10 million x 365 = $200.75 billion a year.

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