Tax policy is energy policy

Study after study in many different nations and economies has shown, for example, that the best way to avoid having to scramble for new supply sources of oil is to control the growth of demand, if not outright to reduce absolute demand.

In other words, it is not about “imports from the Middle East,” as referenced in the president’s State of the Union speech. It is all about aggregate demand for a depleting product. So is it possible to reduce aggregate demand? The short answer is yes – and I do not mean by using a totalitarian or authoritarian approach.

Consider Japan, a postwar industrial powerhouse, and now a respected parliamentary democracy that today uses less oil than it did in 1974. That is, after 32 years of economic growth (OK, including a severe recession in the late 1980s and 1990s), Japan is using less oil now than before, in an absolute sense.

So the case of Japan demonstrates that reducing absolute oil demand is possible over time. How does Japan do it? The short answer is with high fuel taxes and an emphasis at many levels on producing energy-efficient devices, particularly fuel-efficient cars (products that Japan then exports and sells in America, among other places).

MoneyWeek