A week ago, while sitting in my car with the engine off waiting for my wife, a car pulled up beside me and the driver went into a store, leaving his car and the air conditioning running. I guess his spouse could not bother to roll down the windows instead. He returned five minutes later (I did time this). This told me that the price of gasoline is much too low. I suspect that this is not an uncommon event across North America. Indeed, every school day I see parents drive their children to school, creating a traffic jam in the process, rather than walk them the few blocks.

In Canada we continue to invest tens of billions of dollars in the oil sands, investments that distort the economy and may never generate the expected returns. (Can one spell bailout?) Regardless of one’s position on global warming, the oil sands will be for Canada what the Gulf of Mexico blow out is for BP.

I continue to watch, partly in horror and partly in amusement, as BP struggles in a Clouseau-like manner to cap its runaway oil rig. The costs of this disaster will run well into the tens of billions of dollars . If BP had anticipated this possibility and cost, would the company have drilled the wells in the first place? Probably not if the company knew that it would be entirely responsible for the costs. Do we need oil this badly?

Recently, I read another article predicting the coming of peak oil and future prices between US$150 and US$300 per barrel. If oil prices reach only $200 a barrel, the U.S. trade deficit increases by another $300 to $400 billion. As well, the following countries will reap enormous windfall gains anually (relative to the current price of $70): Iran – $220 billion; Saudi Arabia – $435 billion; and Venezuela – $125 billion. What might the geo-political landscape look like in this scenario?

Overlay this with the U.S. Government running a budget deficit well in excess of $1 trillion, and it is obvious that a real carbon tax, one in the $200 to $300 per ton range, is necessary. This would greatly alter the use of energy in the U.S. and drive down world oil prices. The repercussions for oil exporting countries are obvious.

The period until peak oil arrives, assuming the theory is right, would be stretched out many decades. Other countries might appear to gain a trade advantage as a result, but the U.S. could use its multiple trade laws to eliminate any such advantages and maintain the competitive position of U.S.-based companies in world markets.

Part of the revenues generated could be used to reduce the budget deficit. Most should be used to reduce income taxes. The U.S. trade deficit would decline sharply, eliminating another one of the imbalances blamed for the financial and economic crisis of the last few years.

Innovation would be spurred in the U.S., and energy efficiency would improve dramatically as a result. So too would the competitiveness of new industries created in the United States.

Off-shore drilling for oil would become unnecessary as would new oil sands capacity.

So what stands in the way of the U.S. Government doing the obvious? Politics and the belief or fear of politicians that the electorate is both selfish and stupid.

The opinions expressed are personal and do not reflect the views of either Global Brief or the Glendon School of Public and International Affairs.