In his first interview after the election, President-elect Barack Obama emphasized the importance of a new energy policy, worrying that when gas prices fall “suddenly we act like it’s not important, and we start, you know filling up our SUVs again.” In October, the average price of a gallon of gasoline fell to $3.11, the lowest price since February and a dollar less than its peak in June. With gas prices continuing to fall, have Americans forgotten the pain of triple-digit gas bills or are they still willing to be seen in a Toyota Yaris?

It looks like the pain of high gas prices has been forgotten. After seeing a brief surge during the late Spring/early Summer, demand for vehicles averaging over 30 mpg has once again fallen below that of vehicles averaging less than 15 mpg. Perhaps more disheartening, the percent of new vehicle shoppers looking at cars subject to the “gas guzzler tax” has been increasing as well (note the gas guzzler tax does not apply to light trucks).

While the leaders of the Detroit 3 have been hanging around the Capitol building asking for some spare change, some have suggested that any bailout be conditioned upon raising the CAFÉ (fuel economy) standards. It is clear, however, that unless gas prices are sufficiently high Americans are not interested in small, fuel-efficient vehicles. If we want to adopt a new energy policy to begin to wean ourselves off fossil fuels and drive people toward fuel efficient vehicles we must increase the gas tax (gradually) to ensure that gas prices stay above $4. The revenues produced can be returned, in part, in the form of tax rebates, but also to repair our ailing infrastructure. Steady gas prices will also benefit the automakers by alleviating the wild swings in demand from SUV’s to small cars and back again. Will higher gas prices be painful? Of course. Are higher gas prices in our long-term interest? Yes. Will the gas tax be increased? I wouldn’t count on it.

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