Fortunately, solutions do exist that can help reduce the economic strain associated with high gasoline prices without causing distortions or problems such as those listed in the prior section. Workable options include both a short-run solution that can reduce burdens immediately, as well as long-run solutions, which may take more time to reduce the burden but could have long-lasting impacts.
Short-Run Solutions
One solution that can provide relief today from the burden of higher gasoline prices, without creating inefficiencies or market distortions, is to send fixed refunds or rebates to households. If these refunds or rebates are not tied to gasoline consumption, they create positive incentives to reduce gasoline consumption while still providing households with relief.
This type of solution was implemented in California during the summer of 2022, when average gasoline prices spiked to $6.44/gallon in the state. Specifically, the state government began sending checks ranging from $200 to $1,050 to lower-income households; the amounts depended on income and other non-driving related factors (such as number of dependents). These payments did not depend on driving behavior, yet provided relief from the burdens brought about by high gasoline prices and inflation.
The gasoline relief payments California households received were based on a small amount of household-level information. However, our own research demonstrates that rebates can be better targeted to reduce inequities associated with gasoline price burdens In our research example, we focused on burdens caused by gasoline tax increases, though the results also apply to market-based gasoline price increases. by also considering household location. Location is significantly linked with gasoline burdens, as rural households and those without access to public transportation are less able to respond to gasoline price increases than households living in more urban and connected areas. We proposed a gasoline tax rebate in which households in the same county with the same income receive the same rebate, phasing out the rebates for those households with incomes above $100,000. By providing flat payments based on both income and location, we found that the inequities across income caused by gasoline price increases would almost entirely be eliminated.
Long-Run Solutions
Vehicle Efficiency Standards
One long-run solution to reduce the burden of higher gasoline prices is to strengthen vehicle efficiency standards (which regulate the average efficiency of new vehicles), thus ensuring that new vehicles will require less gasoline to travel the same distance. Federal corporate average fuel economy (CAFE) standards, which determine the average efficiency within a vehicle manufacturer’s fleet, have been increasing steadily over the years. In April 2022, the Department of Transportation updated its CAFE standards for model years 2024 to 2026, requiring an average of 49 miles per gallon. Increasing efficiency reduces the amount of gasoline that households will need to purchase to fuel their vehicles. In turn, households spend less on gasoline and are less affected by higher gasoline prices. It is important to note that research suggests, however, that this benefit is tempered by a (small) increase in driving (known as a rebound effect) due to the reduction in the price per mile from the increases in fuel efficiency.
Electric Vehicles
Another solution to reducing the burden associated with high gasoline prices is to incentivize the adoption of electric vehicles (EVs). Because these vehicles do not use gasoline, households who drive EVs no longer have to worry about high gasoline prices. As more households buy EVs, the demand for gasoline drops, and once EV adoption hits a certain level, this can also put downward pressure on gasoline prices and reduce the burden for other households.
The federal government recently passed three major laws (the Infrastructure Investment and Jobs Act, the Inflation Reduction Act, and the CHIPS and Science Act) that provide billions of dollars in funding for EV purchases, charging station investments, and EV battery manufacturing. The existing CAFE standards also provide credits to manufacturers for selling EVs—essentially making it easier for a manufacturer to reach its required fleet efficiency by producing EVs, which further incentivizes EV production.
Another way to decrease the total demand for oil and gasoline is to provide incentives for the adoption of electric medium- and heavy-duty vehicles (trucks and other large vehicles). Electrifying this sector of transportation could have large impacts on total US oil and gasoline demand, as transport trucks, buses, and other large vehicles consume a substantial amount of diesel (which is also refined from oil) due to low average fuel efficiency and high vehicle miles traveled. However, these vehicles are more difficult to electrify given much higher purchase prices relative to diesel trucks, as well as other operational and logistical constraints.
Given the nascent nature of electric vehicle adoption, more research is needed to understand how much of the transportation fleet must be converted to electric to decrease average gasoline prices.
Urban Planning Changes
More broadly, urban planning can be adjusted to help reduce the dependence on gasoline. For example, access to public transportation provides an alternative means to car travel, thereby reducing the demand for gasoline. Our own research has demonstrated that access to public transportation increases the gasoline price responsiveness of households. Smart urban planning, such as mixed-use housing, abundant protected bike lanes, and high-density housing can also help to reduce people’s reliance on gasoline. These changes, however, will take time to implement before we can observe these behavioral changes.
