Why Obama's oil tax wouldn't help electric cars

Staff | May 24, 2016

Sections Economics

In his fiscal 2017 federal budget requests, US President Barack Obama proposed a $10-per-barrel tax on oil, intended in part to fund "a 21st-century clean transportation system." If the tax were enacted, it might drive investment in green-transportation infrastructure and technology—but it wouldn't threaten gasoline's preeminence. Research by Thomas Covert of Chicago Booth, University of Chicago's Michael Greenstone, and MIT's Christopher R. Knittel suggests that it will take more than that to motivate drivers to abandon gasoline for alternative energy sources.

The researchers developed a series of estimates to compare the operating costs of internal-combustion engines to those of electric motors. These calculations suggest that motorists will continue to pay a premium to drive an electric vehicle until battery costs fall and oil prices rise dramatically.