Desmond Lachman responds to Ed Crook's December 22, 2008, article in the Financial Times.

Resident Fellow Desmond Lachman

Ed Crooks' timely article on how plunging oil prices are putting investment in energy at risk (December 22) has to raise the basic question as to whether now might not be the right time for President-elect Barack Obama to be considering a substantial increase in US petrol and carbon taxes.

It would seem that raising petrol and carbon taxes would help Mr Obama meet many of the objectives he spelt out during the election. First, it would provide incentives to alternative energy sources so necessary for reducing US long-run dependence on foreign sources of supply. Second, it could provide him with the necessary funding for a permanent middle class income tax cut by allowing the US rather than Opec to appropriate at least part of the rent from oil. Third, it would aid Ben Bernanke, the Fed chairman, in his fight against the scourge of price deflation. Fourth, it would support Mr Obama's environmental objectives by providing a strong price incentive to reduce pollution.

During his campaign, Mr Obama emphasised that his administration would stand for real change. The energy sector would seem be a very good place to start. Over the past 30 years, there has been much talk about a strategy to reduce US dependence on foreign energy sources, but little action.

The prospect of low international oil prices for a prolonged period would seem to provide Mr Obama with a golden opportunity to effect real change in US energy policy.

Desmond Lachman is a resident fellow at AEI.