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Can (higher) excise taxes, as well as taxes on cars with poor fuel economy, diminish the dependency of Russian oil? What are their advantages and disadvantages?

PS: some believe that natural gas is more important than oil. According to Russian exports in Dec 2021 was: $180bln crude oil and oil products (from these, $110bln crude oil, $70bln oil products), only $56bln natural gas - see data

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  • In what part of the world? Commented Apr 13, 2022 at 17:25
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    In Europe. Also, by lowering the global oil demand it might help other parts of the world.
    – user31264
    Commented Apr 13, 2022 at 17:32
  • My understanding is that the big issue for Europe is Russian natural gas, not oil. Are you asking just about oil, or fossil fuels in general?
    – divibisan
    Commented Apr 13, 2022 at 17:59
  • @divibisan - it's not true. Russian exports in Dec 2021 was: $180bln crude oil and oil products (from these, $110bln crude oil, $70bln oil products), only $56bln natural gas - tradingeconomics.com/russia/exports-by-category
    – user31264
    Commented Apr 13, 2022 at 18:09
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    @user31264 Those figures aren't really relevant to the issue of Europe's dependency. First, they don't account for how much of each goes to Europe vs other countries: 74% of gas goes to Europe, vs 49% of oil. More importantly, oil is much more fungible and easier to transport. It's pretty easy for Europe to switch to US or Saudi oil, it's much harder to switch off Russian gas since expanding capacity requires new pipelines or complex LNG tankers and ports. But that doesn't really matter here since you actually are just asking about oil.
    – divibisan
    Commented Apr 13, 2022 at 18:49

2 Answers 2

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Can (higher) excise taxes, as well as taxes on cars with poor fuel economy, diminish the dependency of Russian oil?

Taxes create incentives to make different economic decisions than would be made, all other things being equal, without them.

So, in the long run, excise taxes can indeed change the collective economic decisions that an economy makes.

Indeed, in Europe, where excise taxes on motor vehicle fuels are about 8-10 times as high as they are in the U.S., this is exactly what has happened. The post-tax retail price of gasoline and diesel in Europe is, for example, in the case of the U.K., which is typical, almost exactly double what it is in the U.S., mostly due to higher European excise taxes on petroleum based motor vehicle fuels.

This price difference is the main reasons that 80% of European cars on the road have manual transmissions, while only 15% of U.S. cars do, since manual transmissions are more fuel efficient, and is one of the main reasons that the average European car is smaller than the average U.S. car. Likewise, this is one of the important reasons that pickup trucks, which are quite fuel inefficient relative to their capabilities, make up a negligible market share in Europe, while they are a very substantial market share in the U.S. This price difference helps explain why adoption of electric vehicles whose economic attractiveness relative to internal combustion vehicles is largely a function of the price of gasoline over the lifetime of the vehicle, has been embraced much more strongly in Europe than in the U.S. And, this price difference is part of the reason the passenger rail has been so much more vibrant in Europe than in the U.S. (since higher gas prices give it a better competitive price position relative to motor vehicles) although the passenger rail analysis is quite a bit more complex (population density and political comfort with government subsidies in the economy are also important factors).

Collectively, the bottom line is that higher excise taxes on petroleum based fuels for motor vehicles in Europe very significantly reduce petroleum consumption relative to what that consumption would be if those excise taxes were lower.

But, in the short run, the story is quite different.

Ultimately, the only way to significantly reduce oil demand is: (1) to put more fuel efficient vehicles on the road (or otherwise into service in the case of boats and aircraft, for example), which takes a long time since the useful life of a vehicle (which is the predominant source of petroleum demand) typically exceeds a decade (so less than 10% of the motor vehicle fleet is replaced every year), or (2) to reduce the amount by which those vehicles currently in service are used, which isn't a great solution because vehicle fuel consumption is the classic example in economics of a level of demand that is highly inelastic (i.e. unresponsive to price levels) in the short term (largely as a consequence of point (1)).

So, excise taxes are not a very effective short term response to a sudden supply shock like the one arising from boycotts of Russian petroleum as a result of the war in Ukraine.

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    "since manual transmissions are more fuel efficient". Is that still true today with all our optimized electronics vs imperfect human drivers? Commented Apr 14, 2022 at 6:54
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    @KevinKostlan absolutely true, but to a lesser extent than, say, 20 years ago. The main reason left why the automatic transmission is less eficient is not the gear selection, but the driver's knowledge of his own intentions.
    – fraxinus
    Commented Apr 14, 2022 at 9:06
  • Working from home and increasing voluntary use of public transport also helps. A fuel eating car doesn't eat fuel if it stays at home because fuel is too expensive. Reducing the heat in your home and wearing a cardigan also helps, if heating gets expensive.
    – gnasher729
    Commented Apr 14, 2022 at 12:16
  • @gnasher729 Working from home and public transport, yes. But reducing heat in your home wouldn't reduce petroleum consumption because petroleum is only very rarely a fuel source for home heating.
    – ohwilleke
    Commented Apr 14, 2022 at 20:00
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    @ohwilleke …unless you happen to be in Germany, the land of oil boilers.
    – TooTea
    Commented Apr 17, 2022 at 19:56
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Probably not. Russia is evading existing sanctions by having oil companies blend it with other oil, thus making it "not Russian"

When is a cargo of Russian diesel not a cargo of Russian diesel? The answer is when Shell Plc, the largest European oil company, turns it into what traders refer to as a Latvian blend.

The point is to market a barrel in which only 49.99% comes from Russia; in Shell’s eyes, as long as the other 50.01 percent is sourced elsewhere, the oil cargo isn’t technically of Russian origin.

Unless you force disclosure of all the sources of oil in a particular cargo ship (and physically verify that) any taxes levied at Russian oil will simply slip through the cracks elsewhere.

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    No, the tax should be levied on buying any gasoline, not on Russian oil.
    – user31264
    Commented Apr 13, 2022 at 21:07
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    "Russia is evading..." - I'd say that it is rather some Western companies (Shell, to be precise) are evading the sanctions for the sake of profits. They mention that in the article: "in Shell’s eyes, as long as the other 50.01 percent is sourced elsewhere, the oil cargo isn’t technically of Russian origin".
    – anemyte
    Commented Apr 14, 2022 at 6:52
  • @anemyte well that is straight-up fraud which should result in prosecution and jail for whoever made that decision. Commented Apr 14, 2022 at 9:46
  • This answer is making the very wrong assumption that there are sanctions on Russian oil. Under no definition is Russia evading sanctions because there are no restrictions on buying Russian oil in Europe (only the US).
    – uberhaxed
    Commented Apr 14, 2022 at 14:23
  • @uberhaxed The question is about taxing Russian oil. If you launder the oil like this, how can you tax it?
    – Machavity
    Commented Apr 14, 2022 at 14:25

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