Nefariously Low Oil Prices

It is happening again. Today, oil was below $52. When oil is going up, nobody thinks it will ever go down - but it does. This is the nefarious syndrome. Oil prices rise provoking conservation & alternatives and stimulating exploration. Big suppliers fear that alternatives might replace oil. They open the spigots. Supply goes up; prices crash, bankrupting nascent alternative energy firms. Conservation makes no sense at the lower prices. SUVs selll better etc. The cycle repeats.

I have written many articles on alternatives. I have also advocated that we tax foreign oil and wrote an article about that almost exactly a year ago. Oil is getting really close to my trigger price. $50 last year is $51.64 now and oil was $51.21 today in New York. Tax it. Cheap oil is a bad thing. It just seems good.

Posted by Jack at January 16, 2007 11:01 PM
Comments
Comment #203642

Jack!!!

I’ll be dawg!! We actually agree!!!
short sweet and to the point!!!

Posted by: Linda H. at January 16, 2007 11:49 PM
Comment #203644

Do you own stock in the Oil companies? I’m trying to figure out why you want gas prices so high.
It can’t be because ya don’t want working folks to be able to get to work.
I don’t think that alternative fuel research is going to quit just because oil prices are going down for now. Price can jump again, and jump real fast.
Folks are getting tied of high gas prices and don’t trust the oil companies when the price goes down to keep it there very long. I believe, at least from I get from a lot of folks I talk to, that they want alternative fuels.

Posted by: Ron Brown at January 16, 2007 11:56 PM
Comment #203660

Jack,

Tax it. I wish we would.

Posted by: Max at January 17, 2007 1:49 AM
Comment #203661

Don’t even need to tax it. Just stop subsidizing it.

Posted by: muirgeo at January 17, 2007 1:57 AM
Comment #203663

Jack,

Good post. Your ideas about taxing gas more heavily are not bad. I’m in Germany, and the price of gas is heinous, about a Euro 50 per liter. Coupled with the currency exchange rate, it would cost me about $70 to put 13 gallons of gas in my car. A large chunk of that additional expense is in taxes. One thing that does disturb me, though, is the idea, floated by Pelosi amongst others, that the oil companies are making too much money. When one compares their expenses against their profits, they aren’t making a percentage that’s grossly out of line with other commodities. The problem is that demand hasn’t gone down even as prices have gone up. Further, I don’t remember anybody complaining back about 7 or 8 years ago when a gallon of gas was 97 cents and the oil companies were losing billions of dollars.

Posted by: 1LT B at January 17, 2007 2:47 AM
Comment #203667

Jack, tax the oil industry. Not the consumer. Yes, the taxes on the oil industry will be passed on to the consumer. But, politically speaking, keeping gas prices high by taxing the industry, partners consumers with government more than taxing the gas at the pumps toward demanding alternatives.

And that provides more incentive to the oil industry to invest earnestly in alternatives themselves, which will be less profitable than the fossil fuel cash cow, but, then every industry can’t expect record profits in perpetuity.

Posted by: David R. Remer at January 17, 2007 4:08 AM
Comment #203669

David

If you tax the industry, you tax the consumer, as you say. Oil firms are not that profitable in terms of return on equity. They are just really big. There is no logical reason to go after than, although politically it makes good headlines and you are right that it will be much easier to push through price hikes by the somewhat dishonest means of claiming to fight big oil. It is important that the price be high. There is no way to protect the consumer from price rises while achieving the goals of limited oil dependence. Consumption AND consumers ARE the problem.

1LT and David

I would not mind us raising a significant part of government revenue through carbon tax. The key is to lower other sorts of taxes. The Feds get around 20% of our GDP and revenues are at an all time high. That is enough.

Ron

There are good reasons not to depend so much on oil. The true cost is not reflected in the prices. That is one use for taxes. You can offset the higher taxes with lower taxes in other areas. If you ended up taxing gas more and other things less, and the individual paid the same amount in general, it would be good.

Posted by: Jack at January 17, 2007 7:31 AM
Comment #203674

Tax oil and use the revenue for solar and wind development.

Posted by: bobo at January 17, 2007 7:59 AM
Comment #203677

Jack-
Your ideas about raising gas taxes and lowering other taxes sounds good on the surface. However, a one-size-fits-all approach is,IMO, impractical.

For instance, in my caase, I drive approximately 18,000 miles per year in my job. My vehicle averages 21 mpg. At the current local price for gas($2.09), it costs me about $1795.00 per year for gas. Increase the price to $3.00 and my cost goes to $2880.00. At $4.00, it’s $3440.00, at $5.00, it’s $4300.00. What taxes would you cut to make up the difference?

In West Texas and other ranching areas, the differences would be even higher because of increased traffic, vehicle differences, etc. Where would the tax cuts be made?

Posted by: John Back at January 17, 2007 9:05 AM
Comment #203680

Jack

I like the idea and am all for it if they can gaurantee me that the additional fuel tax will go directly into the reasearch and development of alternative energy.

One problem I see in your theory is that gas prices do not as a gerneral rule of thumb remain on the low side for long periods nowdays. Any sort of serious development in world politics could set off a sudden and prolonged increase in the price of a barrel of oil. Looking at the delicate situation between the US, Iraq and Iran right now I would not want to hedge my bets on the price of oil remaining low. I also believe that consumers in general no longer put any faith in the fact that prices will remain low for an extended period. We have become acclamaited to the idea that any low price is only a short term trend. We have also become acclamaited to the idea that $2.00 a gallon is a low price. It was not long ago that $1.00 a gallon was considered a fair price. My point being that the consumer has been trained per say to think that in the long run the price of fuel will remain high and go even higher. As result the sales of gas guzzlers will remain low.

I wonder just how much new tax and higher fuel prices the consumer can bear before they have to start deciding between food and fuel.

I think it is apparent that the technology for alternatives is there. All that is needed are the necesary funds to expidite the process.

Posted by: ILdem at January 17, 2007 9:44 AM
Comment #203684

Jack-

While on the surface your idea sounds good:

1. Fuel prices in Europe are already 3X the price here in the States, and “alternative technologies” still do not make economic sense. At the 3X price point you are looking at TDI’s and small 4cyl. gas engines. Maybe some use of “Smart Cars” in urban settings thrown in. All of these are proven technologies that do not need the development dollars. You’d probably have to got to $10/gal before alternative fuel technologies work economically, and I doubt you’d have the political support for such a dramatic tax.

2. You are falling for the “lock box” syndrome. There is no lock box in Washington, and the tax would amount to another expansion of federal government after the cries of “corporate welfare” for the the alternative energy companies set in and the money gets diverted to the general fund. Unless you are talking about funding government based research, which is, again, heavily subcontracted to evil defense and energy contractors like Haliburton.

Posted by: gwestbury@sc.rr.com at January 17, 2007 10:03 AM
Comment #203692

It’s a political game. I find it more than coincidental that gas prices started falling, dramatically, following the take over of Congress by Democrats. Not that I think the Democrats, themselves, had anything directly to do with the dropping prices. I simply think that big oil has no choice, they are not working with a Congress that will simply roll over for them anymore. They need to cool the market to take political pressure off of Democrats who are much more likely, than Republicans, to support government intervention into the market. Big oil also knows that Democrats are much more likely to look seriously at energy alternatives. Republicans talked, but Democrats will act. I am sure that scares big oil more than just a little. Big oil can afford to cut into record profits right now to avoid that. Over the next two years, I think we will see much more fluctuation in the market than we have seen in recent history, where prices rose and stayed there. I wouldn’t be surprised to see a huge spike in gas prices leading up to the 2008 election. I’m sure they are hoping and praying that it will only be a couple of years until their ol’ pals are back in power again.

Posted by: JayJay at January 17, 2007 10:39 AM
Comment #203693

JayJay,

When the prices fell last October people claimed it was caused by the Republicans.

The REALITY is that the price of gasoline is set through a commodity market. Speculation. So while the cost of getting the gas out of the ground may or may not increase, it’s the perceived cost of the oil that gets translated to the pumps. The speculators are the ones setting the price for the rest of us, not the normal action/reacion of supply and demand.

Posted by: Rhinehold at January 17, 2007 10:42 AM
Comment #203694

Rhinehold,

And prices will rise again this Spring. It happens every year.

Posted by: bobo at January 17, 2007 10:53 AM
Comment #203696

Jack

Good,Good. You have identified a big holdback of alternate energy developement. Comming from a free marketer that is especially appreciated. You have recognized that oil is not a free market but maipulated by cartel. I would really like your thoughts about the following instead of a set tax per barrel. The problem with that is that there would still be a potential for instability and would place an additional hardship on people. It would also be hugely unpopular,especially when prices spike.
A. Rather than a tax,setting a floor. Lets say 50$ per barrel for example. When the price falls below that ,say to 49$ per, an automatic levy goes into effect of 1$ to keep the actual price at 50$.

B. Useing the Stratigic Petrolium Reserve much like the Federal Reserve. When prices fall close to a target level the Feds start buying bigtime,even asserting priority in purchasing,if need be. Alternatly they would sell when the price was getting to high. There wouls actually be 3 possible positions like the Fedearl reserve.Buy when prices are too low,hold when stable,Sell when inflated.Direction for such a program would need political independance much like the Fed Reseve. Generally such a program should usually be self-sustaining financially,after all buying low and selling high is a pretty good business model. Of course a large reserve should always be kept for stratigic reasons.

Thoughts?

Posted by: BillS at January 17, 2007 11:26 AM
Comment #203698

Rhinehold,

Simply stating that prices are set through speculation is an oversimplification. What influences those speculations? Eeny, meeny, miny, moe? A crystal ball? Do these speculators live in a vacuum? What is their interest in speculating? Is it not the best interest of the market, their own best interests? What do they base their speculations on? Are their speculations free of political influence and the workings of the actual industry itself? When big oil cuts or increases production does it not have any influence on these speculators? Do political influences not have an impact on the market, that they need not be included in these speculations?

Posted by: JayJay at January 17, 2007 11:43 AM
Comment #203706

Jack, OK, now that you are willing to accept taxing fossil fuels to reflect the true cost of oil dependence and environmental costs, let’s see if you have hung up your hypocrisy entirely. Are you willing to tax nuclear energy to reflect the true cost of its unsubsidized development, operations, handling, waste disposal, and contingency infrastructure in the event of an accident?

(And please, don’t say accidents are not possible. Given plate techtonics, Yellowstone bulging, and rising ocean levels, the simple location of a nuclear power plant exposes risk of accident.)

Posted by: David R. Remer at January 17, 2007 12:27 PM
Comment #203710
Big suppliers fear that alternatives might replace oil. They open the spigots. Supply goes up; prices crash, bankrupting nascent alternative energy firms. Conservation makes no sense at the lower prices. SUVs selll better etc. The cycle repeats.
So, you believe it is an intentional strategy to prevent development of any alternatives?

Perhaps.

I am not a fan of nuclear fission.
Nuclear fission is a relatively bad idea, and it’s not necessary, since we have better alternatives. Nuclear fission power proponents frequently tout nuclear fission power as a limitless supply of energy powered by a fuel that never runs out. Also, nuclear fission can be very dangerous (e.g. Chernobyl, 3-Mile-Island).

Also:

  • (1) Nuclear fission plants are extremely expensive to build.

  • (2) Nuclear fission plants have the potential for catastrophic environmental and human disaster (e.g. Chernobyl, 3 Mile Island, etc.).

  • (3) Nuclear fission plants create large amounts of hazardous, environmentally toxic radioactive waste that will remain hazardous for centuries.

  • (4) Nuclear fission plants are prime targets in war and for terrorists, not to mention being vulnerable to earthquakes, and other natural disasters.

David Remer,
Yes, when Yellowstone erupts, any fission reactors anywhere near by will almost certainly be vulnerable. A good sized earthquake alone could be sufficient. And there’s still the matter of disposing of the by products which will be radioactive for millennia.

Posted by: d.a.n at January 17, 2007 12:59 PM
Comment #203712

gwestbury@sc.rr.com,

Fuel prices in Europe are already 3X the price here in the States, and “alternative technologies” still do not make economic sense.

Diesel does since years. Diesel doesn’t reduce polution, but does reduce average MPG.
Bio-gas are also making more and more economic sense. Northen European nations are leading the way here. As does Brazil since years.

For home, geothermic make economic sense since decades already. Solar, when coupled with another energy, like wood, is quickly reaching it too.

At the 3X price point you are looking at TDI’s and small 4cyl. gas engines. Maybe some use of “Smart Cars” in urban settings thrown in. All of these are proven technologies that do not need the development dollars.

Yep, and it could be surprising, but all these *technologies* actually and successfully transport most of europeans every day.
And all what it needs is to drop/avoid the famous “the bigger one” car syndrom.

Posted by: Philippe Houdoin at January 17, 2007 1:03 PM
Comment #203713

JayJay,

What influences those speculations?

Greed?

Posted by: Philippe Houdoin at January 17, 2007 1:06 PM
Comment #203716

While the price of crude oil is a large effect on the price of gasoline. That price is a worldwide commodity controlled by oil producers. In large part (OPEC). The largest influence is the availability of gasoline. That is controlled by the production of gasoline.

It is well documented that there has been no investment in gasoline production in the U.S. There is evidence that the consolidation of refining companies influenced this market, and reduced excess capacity, making gasoline a much more profitable commodity.

Both sides are true. The producers do control prices to a degree and speculation effects price. Demand is consistently increasing as more economies become more industrial. Demand for energy will not diminish without diminishing economic growth and/or population.

Oil companies have not lost money in the recent past. They are very profitable.I made the mistake of selling Occidental Petroleum in the eighties.

I think Jack’s idea of taxing oil or carbon is good, but contains the danger of creating an additional revenue source for expanding governmental influence. Creating renewable energy sources is essential to creating world stability and U.S. economic growth.

We can argue policy and intent, but the facts aren’t fungible (Just because that world makes me giggle, it’s sounds like a foot disease)

Posted by: gergle at January 17, 2007 1:20 PM
Comment #203724

Philippe-

You would be entertained by the car buying habits of our French Expats when they arrive in the U.S. One bought a 1970 Cadillac Coupe D’ Ville convertible. Many drive pick up trucks……

It’s not surpising to me that most Europeans are transported by TDi’s and the like; I rent one everytime I visit your country. Usually made by Ford too. Go figure.

Posted by: George in SC at January 17, 2007 2:09 PM
Comment #203729

Spoken like a true Republican…’Tax & Spend’…boy, talk about role reversal…

Posted by: Marysdude at January 17, 2007 2:52 PM
Comment #203732

Folks,
Why aren’t businesses (including oil companies) being highly subsidized for researching and creating different fuel alternatives? Seems to me that these are the places that should be rewarded for their research instead of businesses that simply get rich off of the consumers misery.

Posted by: Linda H. at January 17, 2007 2:59 PM
Comment #203737


Jack: You come out with this right after you almost had me convinced that there was no price fixing in the oil market.

Posted by: jlw at January 17, 2007 3:37 PM
Comment #203741

The oil companies who own refineries do indeed control much of the price of gasoline. Prices do fluctuate but not nearly and precipitously as they did before the last election. Refineries were working around the clock because their owners wanted to support the Republicans (or were scared of Democrats). Before that, reducing and then temporarily shutting down refining capacity was their way of propping up gas prices. Now that the election is over, guess what is happening to gas prices even though oil is still relatively lower. Must be time for more of those refining “repairs”.

Posted by: Chris2x at January 17, 2007 4:06 PM
Comment #203744

If the price of gas went up we would find ways of using less gas. Jack isn’t suggesting anything like a “lock-box” but a higher price that would make us use less and be less-dependent on oil thru the “market”. Someone driving a 21 mpg car would look for a vehicle getting better mileage. Looking for vehicles with better mileage would force Detroit to move faster in creating more efficient vehicles in order to avoid getting creamed by foreign competition.

Let’s not forget the many in Europe who use public transportation, bicycles, and foot as a more convient and less expensive way of getting around.

Clinton did look at a gas/energy tax but with the help of one of his secretaries decided it put too large a burden on the rural economy and people. That and his own election loss largely over the issue of hiking car registration fees in Arkansas. How this could be ameliorated would be an interesting discussion. Of course, subsidizing oil is about the only economic issue the Republicans support that actually help rural areas (along with bipartisan support for obscene ag subsidies).

Posted by: Chris2x at January 17, 2007 4:40 PM
Comment #203745

Chris2x-

One, I don’t know where you live, but here in the sticks of Eastern Kentucky, our gas prices are down about 25 cents a gallon over last November. Are the oil companies propping up the Democrats? Two, I don’t know if you have ever had much to do with the refining end of the oil industry, but the shutdowns you talk about are built in to the schedule for maintenance and upgrades. They happen every year, not just when Republicans need a boost.

Posted by: John Back at January 17, 2007 4:42 PM
Comment #203746

George in SC,

You would be entertained by the car buying habits of our French Expats when they arrive in the U.S. One bought a 1970 Cadillac Coupe D’ Ville convertible. Many drive pick up trucks……

I didn’t said french are immune to the “bigger one” car syndrom. The ones that like enough the american way of life enough to expat them in your country may have it more, though.
:-p

It’s not surpising to me that most Europeans are transported by TDi’s and the like; I rent one everytime I visit your country. Usually made by Ford too. Go figure.

Ford group european 2006’s market share is 10.7%.
Too bad you didn’t get the ~50% to rent a car manufactured in Europe to visit it: driving a typical car is part of the journey too.

Or maybe you were inconsciously looking for a familiar brand to rent? ;-)

Posted by: Philippe Houdoin at January 17, 2007 4:55 PM
Comment #203747

John,

Shutting down or operating refineries around the clock does not translate immediately to market prices. If you are like us in California, prices are now going up after their precipitous decline. The routine maintenance excuse is a ruse. Maintenance is required and if indeed routine it should have predictable outcomes across the year.

I remember when power plants were shutdown for “routine” maintenance and along with energy traders virtually routing power all over the country manipulated California’s energy shortage for rather large financial gain.

Posted by: Chris2x at January 17, 2007 5:22 PM
Comment #203748

Chris

I was wondering when someone would put down the Econ 101 book and stumble on the real reason gas prices fluctuates as they do. You are absolutely right; refineries are the bottleneck that can be utilized to manipulate gas prices here in the United States. Here in California, maintenance is rotated amongst the different refineries during the summer, not surprisingly during the peak-driving season.

It will be interesting to see how the Richmond refinery fire will affect gas prices in the near future.

Posted by: Cube at January 17, 2007 5:26 PM
Comment #203749

Philippe-

Ahh they gave me a Renault coupe last time…. I still can see the flash of the radar camera in my eyes. You know the ones!

Posted by: George in SC at January 17, 2007 6:01 PM
Comment #203750

John Back

Some people would benefit; others might lose. This is supposed to change habits and behavior of consumers. There is no painless way to do this. It is an adjustment. Anybody who tries to tell you that such a change will be easy is just not telling the truth.

IlDem

There will NOT be extra money in taxes if it is done right, so it will not go into anything. I have very little confidence in such an investment in any case. The simple higher prices encourage developments. The people may be smarter than their leaders and make better choices on how to develop energy resources.

You are right about technologies being there. We allocate them the way we do now because oil is cheap. At these prices, oil IS the low cost alternative. It is not a mistake or a foolish thing to use oil under the current conditions. We need to alter the current conditions to make oil pay its true way.

Not many people will really be deciding between fuel and food. They will be deciding to make fewer trips, maybe car pool.

Gwestbury

I think it is a danger that the government will just absorb the tax. If you read my post from last year which is linked in the original, you will see I want to government to step in to keep the price off oil above $50 (now a little more than $51 adjusted). At about that price, the market finds it profitable to develop alternatives. I am not as interested in having gas taxed at the pump. That gets to be more of a revenue generator than alternative maker.

Jayjay

Rhinehold beat me to it, but I have to add to his. In the other column we heard that the oil companies lowered prices to help the Republicans. Now we hear that they are doing it because of the Dems. Oil prices have fluctuated a lot. In 1998, they were around $10 a gallon. They went into the $70s and are now just a little more than $50. Maybe this political idea of yours just does not go with the facts and patterns.

MOST oil is controlled by governments either directly or through cartels and state run firms. It is not a clean market, but it certainly is not controlled by the Republicans or even by big American oil firms. There is a great deal of attempted manipulation, but the forces do not agree on which way to do it. It is a type of dirty market, but certainly not susceptible to the political fine tuning you refer to.

BillS

The strategic reserve idea is okay if handled properly, but my goal is not only to stabilize prices, but to stabilize them at a higher level. American Governments are responsive to the people. That is good usually. But in this case the people push for lower prices. This is one instance where leadership is required.

David

I have advocated this carbon tax kind of thing since I was a kid, which was a long time ago. You can see the consistency in my posts. What separates me from some others is that I bear no animus against big oil.

Re taxing nukes, you are advocating a version of the anti-scientific precautionary principle. Insurance should cover reasonable probabilities. In the event of a great catastrophe, all many of our systems will break down. We do not ensure for all of them. Nuclear power in the U.S. has never killed anybody. Other forms of energy, including coal, natural gas, oil etc have. We regulate nukes. That is enough.

d.a.n.

At $50 oil, the market develops alternatives. The problem is that oil is the cheapest and easiest source in many cases. Its external costs are not reflected in that lower price.

Jlw

See above to Jay re prices. It is not price fixing in the sense most people understand the term, but it is not something we should allow to continue. But the usual attacks on big oil are just misguided.

George & Philippe

George, I think you prove Philippe’s point. When French come to the U.S. they quickly adapt to our conditions and waste more oil. OUR conditions.

Posted by: Jack at January 17, 2007 6:12 PM
Comment #203759

Jack,

I’ve not read all of the comments to this post and I actually agree with you to some extent, but playing “devils advocate” and expressing my own liberal views I must ask:

#1. Government involvement, ie: fuel tax, is GOOD.

#2. Government involvement, ie: minimum wage, is bad!

#3. Government involvement, ie: Social Security, well, it would be better if privatized!

#4. Government involvement, ie: Medicare drug prices, better if government stays out of it.

I could go on and on, but you get where I’m going. Just what government intervention is good and what government intervention is bad? To me it simply comes down to either protecting the wealthy or protecting the poor, especially the “working poor”, but when fuel prices “surge” the poor suffer the most.

Posted by: KansasDem at January 17, 2007 7:31 PM
Comment #203766

Jack, you are dodging the question of your hypocrisy. Should nuclear energy be taxed to cover whatever it costs to create permanent and safe waste disposal?

If the answer is yes, then Nuclear energy is no longer cheap, and possibly not even competitive with fossil fuels or other alternative energies.

If the answer is no, they your conflicting opinions are in hypocrisy: favoring taxing the real costs of fossil fuels but, not the real cost of nuclear energy.

Posted by: David R. Remer at January 17, 2007 8:24 PM
Comment #203770

Let me be the guy who lives dangerously and suggests that what we really ought to do is incrementally raise fuel standards. When the car companies realize that their money is to be made from cheaply making alternatives, they’ll hop to it. The key is to get these systems in mass production, and as long as we wait for gas prices to set the demand, that won’t happen. This is one place where the market will not save us.

Posted by: Stephen Daugherty at January 17, 2007 8:32 PM
Comment #203776

David

If you want to include the possible costs, you would have to include global warming in all the CO2 figures.

We are assessing risk and probabilities. You cannot just go to the worst case theoretical scenario. People smarter than I am can figure out the present value of benefits minus damage at various levels of risk for oil, coal, nuclear etc. I would be interested in using those figures in my analysis, but I will not accept a general precaution.

Re hypocrisy - that is not something I particularly fear. For my job, I have developed hypocrisy to a fine art. I am proud of my skill in obfiscation and hypocrisy when I need to use them. In this case, however, the word hypocrisy does not apply. I just believe nuclear is a better choice in the medium run. I could be mistaken in judgment, but not hypocritical.

The other important saying I like is that hypocrisy is the tribute vice pays to virtue. I lament the decline of hypocrisy in our society because it indicates that too many people do not even know what is right.

Posted by: Jack at January 17, 2007 9:00 PM
Comment #203790

Jack
Thank you for getting back to me and thanks for bringing up an important,perhaps the most important topic we need to come to grips with. This is a problem we really should move on quickly and together. I hope that you guys put forward a presidential candidate that is willing ti take the leadership on energy independance. I know we will.
Keeping the cost a a high level will stimulate alternative developement as you point out. Some degree of price stability is also important. The amount of capital investment needed will require it. As a businessman how could you formulate a plan if you do not know about how much your end product will be worth? The Saudis have let out that they are willing to lower oil prices to keep alternatives from developing. Easy for them as they have little investment to bring their product to market.
Other places the feds could help would be changes to patent law that would allow a reasonable time for inventions involving alternate energy or conservation to be brought to market. Say 3-5 years. After that they become public domain. This should be retroactive. To that end,the SBA should be funded perhaps with your tax,to provide some start up money for firms dealing with alternates.
There is a host of other options the feds could implement that would help much. Raising mileage standards for one. The argument that this would be hard on US auto makers is specious. The companies that are producing high mileage vehicals like Toyota and Honda are doing just fine.

Posted by: BillS at January 17, 2007 11:49 PM
Comment #203793

I think going the market route is a clumsy way of doing things, and far too dependent on external events. Crank up the CAFE ratings five MPG a year, among other things. Not every solution has to be a tax or a tax break, or some other form of financial incentive or disincentive.

In fact, all that runs counter to what one really could call free-market principles. Why are we messing with prices in order to make them equivalent to alternatives? Where’s the incentive then to reduce prices on alternatives. Why not simply put into effect regulations that mandate that cars or fleets of cars meet a certain standard, and give it time for the pure market forces to sort out the winners?

The price of using “market forces” to encourage this sort of thing is that it becomes a form of corporate welfare, which corrupts the actual market forces. You get far enough into the game, and you’re trying to anticipate supply, demand, cost and price and all these things from the center.

Which gets you into the very reason we like the free market: massively parallel, simultaneous decision making, which can solve a problem throught the different minds of different people. We should not light throw away that aspect.

Posted by: Stephen Daugherty at January 18, 2007 12:35 AM
Comment #203799

Stephen D.
The best reason to move forward with incentives etc.is that is the only way we are likely to move forward at all.What Jack has suggested is basically a tariff. It is a protectionist policy. I applaud him,a free-marketer to the core,for recognizing that we are not dealing with a free market. We are dealing with a cartel that would be illeagal in the US and quite willing to lower prices long enough to put the competitian out of business. It was protectionism and price supports that made American agriculture the economic powerhouse it is today. Application of the same typs of policies will also help the alternate energy industry.
Personally,I am with you. We should have nationalized the oil industry when we broke up the Rockafeller monopoly. It would have saved lots of grief. Raise the CAFE standards certainly. While at it we should investigate the links between the oil companies and US car makers. There must be colusion, The GM and Ford execs can’t be that stupid.

Posted by: BillS at January 18, 2007 2:35 AM
Comment #203804

Jack, nuclear waste management is NOT a future undefined cost. Include it and tax the industry for it to insure the resources are there to pay for managing nuclear waste. Because the nuclear industry is not even going to include those costs in touting the growth of their industry. Instead, they will define nuclear waste management as a social problem for the tax payers to underwrite.

Precisely what the OIL industry has done to the tax payer for more than 50 years now.

Posted by: David R. Remer at January 18, 2007 3:52 AM
Comment #203805

Stephen, possibly the single greatest effort to reduce emissions pollution would be underwrite solar roofs and electric second cars for all families owning two vehicles.

But the auto industry will oppose it because it their high profit margins come from planned obsolescence of moving parts in a combustion engine.

The OIL companies will oppose it because they don’t own the lion’s share of the silicon wafer industry.

Politicians and political parties will oppose it because their campaign dollars come from auto and oil industries in the 100’s of millions over several election cycles. Which is far more than the silicon industry now contributes.

Posted by: David R. Remer at January 18, 2007 3:58 AM
Comment #203808

George in SC,

Ahh they gave me a Renault coupe last time…. I still can see the flash of the radar camera in my eyes. You know the ones!

I only saw it once.
I’m blind since ;-)

Posted by: Philippe Houdoin at January 18, 2007 5:08 AM
Comment #203816

Bill S-
Nationalize the oil industry? No. I don’t see the good in that. I believe in competition. People grow soft if they don’t have to beat somebody else. A great deal of our trouble with the energy companies now is how many of the oil giants have merged and shutdown refineries.

I do see a problem in excessive speculation. It should be supply and demand that determine prices, not whether some well-placed energy trader wants a house in malibu. We should also be scrubbing them down with investigations to see if any scum are deliberately shutting down plants and machinery to jack up prices.

No, what I would regulate is the manner in which these businesses are run, their ability to consolidate (Standard Oil was split up for a reason), and the minimum fuel consumption for vehicles.

What I’m looking for is control points, places where we can get a lot done by setting a simple standard. Instead of trying to guess the best technology, we simply say “you need to be this efficient to ride America’s highways”, and let the companies figure it out in the marketplace. Consumer’s demands for power, reliability, and other factors will ensure that the companies do their best to keep the technology itself efficient and cheap.

Posted by: Stephen Daugherty at January 18, 2007 9:16 AM
Comment #203825

Stephen D.
Too late to nationalize but it would be nice if the government could control the oil industry instead of the other way around. Their interest have led us into some horrible forign policy decisions.
There is great justification for more government control. Much of their commodity comes from land that is owned by us collectively also a good deal of our high defense budget is spent on secureing supply lines for their product. The latter is another good reason for us to look for alternatives. Then our forces could once again start protecting Americans instead of the Gulf of Hurmoz.

Posted by: BillS at January 18, 2007 11:11 AM
Comment #203842

Jack wrote:
d.a.n ,
At $50 oil, the market develops alternatives. The problem is that oil is the cheapest and easiest source in many cases. Its external costs are not reflected in that lower price.
Like wars over oil ?
No wonder the doomsday clock is now 5 minutes to doomsday.

So, what are you suggesting?
That we tax it more to make it more expensive?
If so, that’s odd for a typical Republican.

Personally, it is repugnant (to me) to selectively tax (i.e. windfall tax) certain industries more or less for various reasons.

It is a perfect example of bloated government meddling where it shouldn’t.

And, such meddling often does more harm than good.
This type of meddling certainly doesn’t coincide with free market philosophies.

Just the fact that too few see it that way shows how far we already are down that slippery slope.

So, where does it stop?
Should we tax some other things at various rates?
Is that even constitutional?
It shouldn’t be.
So, if we discover next week that beef is bad for your health, should we tax it more?
Is the government taxing cigarettes, liquor, and other various things (even if they are bad for your health) constitutional?
Doesn’t anyone else see the problem with this trend?
Who decides?
Who has the right to decide?
Next thing you know, the government will be imposing higher taxes on video games because it leads to childhood obesity.

What a mess!
How did things get so twisted?
What other powers will we give to government, as it grows increasingly bloated, corrupt, controlling, and oppressive?

As if we didn’t have more important things to worry about, then figuring out ways for government (which meddles too much already) to manipulate prices, taxes, and every facet of our lives, from cradle-to-grave … always looking for government to solve everything, despite its propensity for creating more problems than it solves. Especially in this era of massive fiscal irresponsibility.

Stephen Daugherty wrote: What I’m looking for is control points, places where we can get a lot done by setting a simple standard. Instead of trying to guess the best technology, we simply say “you need to be this efficient to ride America’s highways”, and let the companies figure it out in the marketplace. Consumer’s demands for power, reliability, and other factors will ensure that the companies do their best to keep the technology itself efficient and cheap.

Yes, there are legal and moral things government can do to encourage solutions.
It should NOT be done with windfall taxes.
The government can rightfully impose standards for more-efficient engines, cleaner air, etc.
The government can do that because the pollution of one person’s excessive-polluting automobile is something that harms and endangers someone else.
That is a reason that can pass both legal and moral requirements.
More mass transit would help.
More research into other energy alternatives would help.

Glad to see you don’t support “nationalization” of the oil companies. That is what oppressive and controlling governments do.

As you say, it’s best to let the markets figure it out. Like voters, they are motivated by pain and discomfort. When it becomes painful enough, they’ll change. Again, sooner would be better than later … the longer we wait, the more painful it will be later.

Posted by: d.a.n at January 18, 2007 1:17 PM
Comment #203885


A study published in American Geophysical Union dated May 16,2005, studied wind speeds at 7500 surface stations and 500 balloon launch stations to determine global wind speeds at 80 meters (300 feet) above the ground, the hub height of large modern wind turbines. The authors reported that 13% of the stations experienced winds with an annual wind speed great enough for power generation, 6.9 meters per second ( 15 mph.) These areas are known as Wind Power Class 3 locations. The main implication of the study is that wind, for low-cost wind energy is more widely available than was previously recognized, and that a more extensive survey would find many more suitable areas.

The authors estimated that the Class 3 sites they studied could produce approximately 72 Terawatts annualy and that capturing a small percentage of the potential energy could produce the 1.6-1.8 Terawatts used in the year 2000.

There are drawbacks such as possible noise, birds, large numbers of turbins needed and wind consistency. Location can eleviate most of these. For instance, wind speeds are greater and more consistent along shore lines. Offshore farms are better. I believe the current generation of large turbines are rated at 1.5 megawatts each but, i’ve read that 2.5’s are on the way.

Do people want wind farms as neighbors? Apparently, that depends on where you live. A survey of east coast residents who can see the ocean from where they live, found that 25% of Cape Cod residents favored offshore wind farms. In New Jersey, that number was 41% and in Deleware, 59%. Another survey showed that 78% of Deleware residents were in favor of wind farms. The most recent survey conducted by the University of Deleware, surveyed 949 residents and found that 90% of those surveyed were in favor of offshore wind farms even if they would have to pay $i to $30 per month for electricity, and 88.6% of them said they would continue to go to their favorite beach even if a wind farm was located offshore.

Posted by: jlw at January 18, 2007 7:17 PM
Comment #203886


A study published in American Geophysical Union dated May 16,2005, studied wind speeds at 7500 surface stations and 500 balloon launch stations to determine global wind speeds at 80 meters (300 feet) above the ground, the hub height of large modern wind turbines. The authors reported that 13% of the stations experienced winds with an annual wind speed great enough for power generation, 6.9 meters per second ( 15 mph.) These areas are known as Wind Power Class 3 locations. The main implication of the study is that wind, for low-cost wind energy is more widely available than was previously recognized, and that a more extensive survey would find many more suitable areas.

The authors estimated that the Class 3 sites they studied could produce approximately 72 Terawatts annually and that capturing a small percentage of the potential energy could produce the 1.6-1.8 Terawatts used in the year 2000.

There are drawbacks such as possible noise, birds, large numbers of turbins needed and wind consistency. Location can alleviate most of these. For instance, wind speeds are greater and more consistent along shore lines. Offshore farms are better. I believe the current generation of large turbines are rated at 1.5 megawatts each but, i’ve read that 2.5’s are on the way.

Do people want wind farms as neighbors? Apparently, that depends on where you live. A survey of east coast residents who can see the ocean from where they live, found that 25% of Cape Cod residents favored offshore wind farms. In New Jersey, that number was 41% and in Delaware, 59%. Another survey showed that 78% of Delaware residents were in favor of wind farms. The most recent survey conducted by the University of Delaware, surveyed 949 residents and found that 90% of those surveyed were in favor of offshore wind farms even if they would have to pay $i to $30 per month for electricity, and 88.6% of them said they would continue to go to their favorite beach even if a wind farm was located offshore.

Posted by: jlw at January 18, 2007 7:26 PM
Comment #203887

A study published in American Geophysical Union dated May 16,2005, studied wind speeds at 7500 surface stations and 500 balloon launch stations to determine global wind speeds at 80 meters (300 feet) above the ground, the hub height of large modern wind turbines. The authors reported that 13% of the stations experienced winds with an annual wind speed great enough for power generation, 6.9 meters per second ( 15 mph.) These areas are known as Wind Power Class 3 locations. The main implication of the study is that wind, for low-cost wind energy is more widely available than was previously recognized, and that a more extensive survey would find many more suitable areas.

The authors estimated that the Class 3 sites they studied could produce approximately 72 Terawatts annually and that capturing a small percentage of the potential energy could produce the 1.6-1.8 Terawatts used in the year 2000.

There are drawbacks such as possible noise, birds, large numbers of turbins needed and wind consistency. Location can alleviate most of these. For instance, wind speeds are greater and more consistent along shore lines. Offshore farms are better. I believe the current generation of large turbines are rated at 1.5 megawatts each but, i’ve read that 2.5’s are on the way.

Do people want wind farms as neighbors? Apparently, that depends on where you live. A survey of east coast residents who can see the ocean from where they live, found that 25% of Cape Cod residents favored offshore wind farms. In New Jersey, that number was 41% and in Delaware, 59%. Another survey showed that 78% of Delaware residents were in favor of wind farms. The most recent survey conducted by the University of Delaware, surveyed 949 residents and found that 90% of those surveyed were in favor of offshore wind farms even if they would have to pay $i to $30 per month for electricity, and 88.6% of them said they would continue to go to their favorite beach even if a wind farm was located offshore. Sience Daily website.

Posted by: jlw at January 18, 2007 7:27 PM
Comment #203943

jlw, When is science going to get away from thinking Huge in terms of wind power, and start thinking small, capturing the wind energy of highways, air foils, trains, pedestrian traffic on crowded streets, thermal updrafts in urban morning environments, and cow flatulence. There are myriads of small wind currents that if captured by a flood of minute cheap converters could produce huge wattage results.

And how about the ocean’s currents?

Earth bermed housing saves between 60 and 90% on heating and cooling costs depending on location using solar gain in colder climates and solar deflection in hot climates. (Not to mention the savings in insurance and maintenance of such structures from wind, hail, and ultraviolet radiation, each causing enormous costs to home insurers and premium payers.)

Electric cars have been around a very long time. Now we have solar voltaic roofing systems which can charge cars for the cost of capturing sunlight.

Posted by: David R. Remer at January 19, 2007 5:52 AM
Comment #203997

David R. Remer-
Dependability is as much a factor as anything. Even if you feed ole Bessie a diet of beans (the magical fruit), you still won’t find your cow to be a reliable generator of wind.

Reliability is a necessity in power generation. You need to be able to say that you’ll get this much power generation. Solar or fuel-cell generation is better for home requirements, but technological problems have to be ironed out in both cases to make these reliable, strong contributors to the power grid.

Posted by: Stephen Daugherty at January 19, 2007 2:27 PM
Comment #204001

All progress depends on the price of oil staying high. If it is low, people will not bother to change and firms will not make investments.

According to data published yesterday by the IEA, oil demand last year fell in all three major OECD regions - North America, Europe and the Pacific. This is a first. It is the price that did it.

Posted by: Jack at January 19, 2007 2:49 PM
Comment #204038

Stephen D., you are ignoring energy storage technology, which makes unreliable sources for energy generation, valuable adjuncts to the energy alternative solution. Energy storage, chemical, heat, gravitational, etc. is a rapidly growing technology and holds out the greatest hope of making profitable these nano energy generators.

Posted by: David R. Remer at January 19, 2007 5:51 PM
Comment #204144

Jack,

Let me see if I understand you correctly:

1. Tax oil.
2. Create a large windfall for the government.
3. Trust the government to use this only for alternative energy research and development.
4. Quit subsidizing the oil industry.
5. Start subsidizing other energy industries with the funds produced from the oil industries to help put oil industries out of business.

Questions:
1. What happens if the oil industries collapse before the other industries are up and running to the point that they can keep up with demand?
2. Should big government be allowed to collapse one industry to promote another by taxing it out of the consumer’s ability to pay, much like alcohol and tobacco companies have suffered? Isn’t that the same as creating a monopoly based upon someone’s hatred for a particualr industry? You’re starting to sound like a liberal, Jack.
3. Do you really trust the government to use the funds on energy rather than growing their social programs as has happened through the last seventy years or more?
4. Isn’t it hypocritical for liberals to wail about subsidies to oil and other corporate welfare businesses, then turn right around and promote corporate welfare to businesses “close to their hearts”?

JD

Posted by: JD at January 20, 2007 11:35 AM
Comment #204155

JD

I do not advocate a windfall, nor to I think the government should use the money to increase R&D.

I want this tax to be revenue neutral. We are just changing the locus of the tax to carbon. Cut taxes other places. My goal is to keep the price of oil at the price of its total costs. It is getting too much of a free ride at this time.

Posted by: Jack at January 20, 2007 12:46 PM
Comment #204320

Jack,

Have you ever wondered about taxing different things at different rates ?
Do you like a graduated income tax ?
If not, why tax some things more than others ?
Where does it end ?
Who decides ?
What shall we tax more next ?
Beef, because cholesterol clogs arteries ?
McDonalds, because it makes people fat ?
The whole notion strikes me as just one more way government is excessively manupulative, meddlesome, greedy, and oppressive.

Government and too many voters, in this era of government dependence and sense of entitlement, want government to do things it was never meant, and should never do, as government continues to grow and grow to nightmare proportions, invading every aspect of our life. I thought less government was supposed to be the goal?


Posted by: d.a.n at January 21, 2007 6:17 PM
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