Martin Feldstein Proposes Tradeable Gasoline Rights

Martin Feldstein writes in the WSJ (subscription required): Tradeable Gasoline Rights

For excerpts, see Dr. Thoma: Tradeable Gas Rights

A far better approach would be a system of tradeable gasoline rights, or TGRs. These could be distributed in a way that actually raises the income of a majority of households while giving everyone an incentive to reduce gasoline consumption.

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.

A key feature of these gasoline rights is that they are tradeable. Individuals with more TGRs than they need could sell the excess, while those who want to use more gallons than their allocation would have to buy extra TGRs.

Professor Thoma is open to the idea, but expresses concern about how politics will intrude on the allocation of TGRs and on the cap.

Would the cap on gasoline usage be as easy to lift as the debt limit? … [W]ill the credits per person be decided based upon political considerations rather than economics? This may well be better than other proposals in a lot of dimensions and I am not opposed to it, but unless I missed something on the allocation part, it doesn’t seem so obvious that it would sail through congress.

Dr. DeLong praises the proposal:

I think Marty’s right. I think it’s a clever idea–and much better than tightening CAFE.

I think this idea has merit, so its probably the last we will hear of it. I’d suggest allocating the same number of TGRs to all registered drivers and letting the martketplace do its magic.

Best to all, CR Calculated Risk