Martin Feldstein has a column in today’s WSJ (subscription required) in which he recommends that the government issue tradeable gasoline rights (TGRs) instead of either raising CAFE standards or imposing a gasoline tax.
In a system of tradeable gasoline rights, the government would give each adult a TGR debit card. The gasoline pumps at service stations … would be modified to read these new TGR debit cards… Buying a gallon of gasoline would require using up one tradeable gasoline right as well as paying money.
The government would decide how many gallons of gasoline should be consumed per year and would give out that total number of TGRs. In 2006, Americans will buy about 110 billion gallons of gasoline. To keep that total unchanged in 2007, the government would distribute 110 billion TGRs. To reduce total gasoline consumption by 5%, it would cut the number of TGRs to 104.5 billion.
The government could distribute TGRs to reflect geographic differences in driving patterns. … Businesses that use trucks would also get TGRs.
Feldstein goes on to argue that because they are tradeable, they will provide dispersed benefits to individuals, rather like cap-and-trade pollution markets. I am not convinced. My initial thought was that, notwithstanding the tradeability, this scheme sounds like WWII ration cards, digitally updated. Should the government be in the business of gasoline rationing? Isn’t this option more transaction-cost-laden and prone to political manipulation at state and federal levels (allocations, who sets the cap, where the cap is set, etc.) than a gasoline tax?
I can see his logic, although he doesn’t say it this way in the piece: isn’t a TGR scheme a way to define property rights and then enable parties to trade? But it is so potentially prone to political manipulation, and over such a large number of possible stakeholder organizations, that I think it would distort decision-making enough to generate bad outcomes and entrench special interests. If it’s meant to be a CAFE substitute, why not have a cap-and-trade system that applies to automobile fleets? Could be much less fiddly, much lower in transaction costs. But as stated in his piece, I think Feldstein’s recommendation is too Rococo in its design.
In any case, such a policy has to start from a primary objective: is the primary objective here to reduce emissions, or simply to reduce the use of gasoline? I contend that those different objectives have different policy implications.
Other commentary from Mark Thoma and Brad DeLong. Mark’s post provides substantial quoting from the article, for those without subscriptions. Mark is skeptical, Brad is optimistic. I’m with Mark and would go even further, as above.
UPDATE: see also Greg Mankiw’s comments, which are along the same lines as mine.