THE BLOG
12/18/2014 05:32 pm ET Updated Dec 06, 2017

Cheap Gas Got You Thinking About That Suburban? Think Again

2014-12-18-Gaspump.jpg

People filling up their cars lately have seen the price of gasoline drop below $3 a gallon, and there are indications we might be heading closer to $2 a gallon nationally some time next year.

Americans with big-car lust might be thinking at this point, "Woo-hoo! Time to buy that Chevy Suburban."

Think again.

We've been down this bumpy road before. In the early 2000s, when gas was hovering around $1.50 a gallon, Americans fell in love with gas-guzzling SUVs. By 2008, however, Hummer owners found themselves dropping Benjamins left and right when gas hit $4 a gallon.

Our memories are short, though, and with the siren song of cheap gas beckoning, sales of big vehicles are on the upswing. November sales of the Cadillac Escalade SUV were up 91.5 per cent over November of last year, and sales of Ford's Navigator rose of 88 percent.

Our gas is cheap at the moment because of the glut of oil on the world market, resulting primarily from new and harder-to-extract sources like the tar sands in Alberta and shale formations in North Dakota and other locations in the U.S. These sources, which are more costly to extract and process than conventional oil, became profitable when the price of oil began shooting above $80 a barrel. When oil breached $100 a barrel, the gold rush was on, producing the current glut.

The Saudis, of course, would like to see higher oil prices, but the oil glut ensuing from North American sources has sent prices plummeting. In times past, the Saudis and other OPEC nations would simply cut back on production to stabilize and boost the price. But they have other ideas this time around: Squeeze out the competition.

By keeping their spigots wide open, the Saudis are pushing the price of oil below levels that are profitable for unconventional producers. Their strategy appears to be working. The Houston Chronicle reports that 550 oil rigs in shale formations are shutting down because of falling prices.

It may take a couple of years, but once the Saudis have squeezed out the competition, they'll start putting the squeeze on consumers at the pump. That's when that Escalade will be hanging like an albatross around their owners' necks.

It's time for us to get off the oil market roller coaster, and the only way to do that is with a significant and predictable price on carbon.

The point that many Americans overlook is that cheap gas really isn't all that cheap when you factor in the damage being done to our environment and the impact of global warming - droughts, floods, food shortages, wildfires, property damage from extreme weather and rising sea levels.

The good news, though, is that just as market forces - low prices at the pump - are pushing sales of gas guzzlers, those same forces can be used to reverse the trend toward smarter, cleaner purchases. Sales of the Toyota Prius spiked when gas hit $3 a gallon for the first time and again when it reached $4 a gallon.

While the general trend in gas prices is up, the trick is to avoid the peaks and valleys in the marketplace that lead to erratic consumer behavior. A steadily-rising fee on the carbon dioxide content of fossil fuels would smooth out those peaks and valleys, motivating consumers to make choices that are economically wise for them and ecologically smart for our warming world.

But wait. Won't a price on carbon raise fuel and energy costs and be bad for our economy?

Not if it's done the right way.

A study from Regional Economic Models, Inc. (REMI) looked at a carbon fee starting at $10 per ton of CO2 and rising $10 per ton each year. Revenue from the fee was divided equally among all households and refunded as a monthly dividend, offsetting higher energy costs and then some for most Americans. Under this Carbon Fee and Dividend approach, the REMI study found that, after 20 years, CO2 emissions went down 50 percent and that 2.8 million jobs were added to the economy, primarily because of the economic stimulus of recycling carbon fee revenue into the pockets of people likely to spend the money.

We have two choices: We can continue to dance to the tune being called by the Saudi oil merchants, or we can get off the roller coaster and move away from our dependency on ALL oil by putting a revenue-neutral price on carbon.

My advice: If you're buying a Chevy, go with the Volt instead of the Suburban.