This paper evaluates public policy options for responding to rising fuel prices. There is popular support for policies to minimize retail prices by reducing fuel taxes or providing production subsidies. But price-minimization policies are likely to harm consumers and the economy overall by encouraging transportation system inefficiency. Fuel price reductions are an inappropriate way to provide affordable mobility to low-income households; other strategies can do more to increase affordability while also increasing transport system efficiency. Because many transportation decisions are durable, low fuel price policies will increase future fuel import costs, imposing harming the future economy. Rather than reducing fuel prices it would be better to allow prices to rise and do everything possible to improve transport system efficiency. It is difficult to image consumers demonstrating with signs that say, "Raise My Fuel Prices!," but it actually makes sense.

Full paper: http://www.vtpi.org/fuelprice.pdf