As falling oil prices boost Americans’ spending power, the U.S. government is also gaining flexibility from savings on oil.
Americans have seen a boost in their spending power this winter and it’s thanks in part to the free fall in oil prices, which have plunged to a five-year low.
And similar to individual consumers, entire countries are deciding how to take advantage of the massive savings on oil.
India may be the most extreme example where, in October, Prime Minister Narendra Modi took the opportunity to end government subsidies of diesel, then, in November, he essentially raised the county’s gas tax.
In Ukraine, falling oil prices led to a fall in natural gas prices that helped the country to strike an agreement with Russia and maintain its gas supplies through the winter.
And back in the U.S., there is no shortage of ideas for how America should respond to the oil savings.
The International Energy Agency’s Maria van der Hoeven called on developed nations to take the opportunity to tax carbon emissions and to end fossil-fuel subsidies, which total more than $550 billion around the globe.
“The point is if these low prices are there, use the opportunity…because you can do it with less economic harm then when you wait until oil prices are going to rise again,” van der Hoeven told CNBC.
Wonkblog’s Chris Mooney struck a similar chord saying now is the time to raise the national gasoline tax which has remained at about 18 cents since 1993. Increased gasoline tax revenue, he argues, could be used to “Fix our highway infrastructure, green our behavior,” and “help us find tax reform compromise.”
But some analysts worry that over confidence in cheap oil prices could lead to a drop in support for fuel efficient vehicles and alternative energy, which gained popularity when oil prices were surging.
As Michael Levi of the Council on Foreign Relations recently warned, “Just as volatility creates opportunities for smart policy, it can also make stupidity easier. Little about the market turmoil should inspire confidence that anyone knows where oil prices will be in a year, let alone a decade or more…”
A bipartisan pair of U.S. representatives did introduce a bill to raise the national gas tax earlier this month. But raising any tax at all will be an even tougher fight in the next two years, as Republicans take control of both chambers of Congress.