There are two essential ways to increase the fuel efficiency of a nation's fleet of automobiles while also reducing emissions. One is to impose higher gasoline taxes (the demand side), which is largely how Europe and Japan address the problem. The other is to impose government mileage standards (the supply side), which is the answer from the United States--and increasingly from China.
At the opening of the Beijing Auto Show auto executives reported that the Chinese government is putting pressure on manufacturers to improve the energy efficiency of their vehicles. Yet the price of gasoline and diesel in that country is currently below $3 a gallon, thanks to heavy government subsidies.
The U.S. doesn't subsidize gasoline, exactly, though inflation has reduced its real price (the gasoline tax hasn't been raised since 1993). And presidential hopeful John McCain has proposed a gas-tax holiday.
Which solution works? Read after the jump.
Hybrids have been a tough sell in China. Why? Costs. The Chinese government's ham-handedness may be part of the problem. The Toyota Prius starts at about $21,000 in the U.S. In China, it costs nearly $40,000, thanks to government duties on imported parts, higher production costs and a lack of competition. It's no surprise that wealthy Chinese would rather have luxury SUVs.
For the first two months of 2008, sales of SUVs were up 38 percent. Mercedes Benz announced that it would begin shipping its midsized GLK SUV to China. And GM's Escalade is selling like crazy. Sales of U.S. minivans and trucks are also up.
In response, the Chinese government has imposed a vehicle tax based on engine size between 1 and 20 percent. The other measure imposes taxes on cars that fail to meet stringent fuel-efficiency standards.
Yet it's clearly not working. In the United States, a higher gas tax puts more of a burden on the working class and the poor. Wealthy people can afford higher tariffs for gas guzzlers as well as the fuel that runs them. In China, only the upper middle class and wealthy can afford cars to begin with. A higher gas tax would force them to pay more of the real costs of emissions. It might also encourage them to demand more fuel-efficient vehicles.