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Oil: Price and Depedence
High gas prices and Bush's desire to push his energy bill through congress generate a couple of articles in The Washington Post about the politics of it all. Sadly, there's not much policy meat here. Most notably, the two key goals everyone is claiming for themselves -- cheaper gas and ending "dependence on foreign oil" -- are sort of incompatible. If oil prices got really, really, really low the only oil fields operating would be the ones in the Gulf. It's high prices that encourage non-Gulf pumping and sustained high prices that encourage new exploration and infrastructure development outside the Gulf region. Meanwhile, I'm still inclined to agree with John Quiggin that while the high oil prices are extremely annoying to almost everyone, and a serious burden on poor people, in big-picture terms the global economy is holding up fine: "the response so far seems to be a textbook case of orderly adjustment, as people gradually shift away from gas-guzzling vehicles, look again at energy saving options and so on." The trouble is that such switching takes time, but it's not clear to me that there's much that can be done on the policy front to encourage it to happen faster besides higher gasoline taxes, which is going to be a political non-starter given what's going on.
April 21, 2005 | Permalink
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Comments
the two key goals everyone is claiming for themselves -- cheaper gas and ending "dependence on foreign oil" -- are sort of incompatible.
Only in the short term; if the U.S. could actually stop needing oil, prices would become very cheap indeed.
Posted by: bobo brooks | Apr 21, 2005 11:00:49 AM
Pushing it to happen faster can cost more than just buring the oil, in any case; Trading in cars that are nowhere near the end of their useful life, things like that.
Posted by: Brett Bellmore | Apr 21, 2005 11:03:47 AM
sad, but probably true. shoulda coulda woulda.
Posted by: praktike | Apr 21, 2005 11:03:51 AM
Of course we need fuel efficiency and conservation short term, alternative sources (ultimately better solar power and better batteries to hold it) long term, maybe even nuclear medium term.
But as for drilling in ANWR: eventually we will run out of oil. While we still have a significant amount, why not pump every last drop the Saudis have. If we run ourselves down, and they still have lots, they could really screw us. Other than the greed of short term gain, what possible long term benefit is there to using up all our supplies before the Saudis do? Hold it in reserve for emergencies: war, blackmail, etc.
Posted by: epistemology | Apr 21, 2005 11:29:23 AM
Economic squeezing seems the only way to get people to stop buying gas-guzzling super polluters. Seriously, I saw a stretch hummer in NYC a few days ago. It was so long there were probably 6 or 7 windows on each side, the proverbial bird flip to the "one world and we all have to share it" idea. You'd think we could know better. Sorry about the serious burdens to some people but it appears high prices are the only lesson we're willing to learn. Anybody see National Geographic's "Strange Days on Planet Earth" on PBS? Ford was "not-advertising" it's hybrid with a caption like "looking ahead for all of us". Puuuullleeaaassse.
Posted by: maybe good? | Apr 21, 2005 12:26:09 PM
Matt, if oil became prohibitively expensive, which more people agree that it's about to start doing (in the next 5-10 years), where will you get the food that you eat? Are you going to grow it?
Posted by: Joe Drymala | Apr 21, 2005 12:41:47 PM
the government can encourage the development of better technology through non-tax measures. Stuff like hydrogen cars and battery technology can be developed more quickly than it is right now. It just takes money.
If batteries got a whole lot better, hybrids could "plug-in", and hardly use any gas at all. "plugging-in" a car has big marketing negatives right now, but things will change a gas gets more expensive. When the technology gets here depends on the sum of public and private research.
There's tons the government could do without messing with supply and demand. They won't because of big oil's influence in Washington though.
Posted by: scott lewis | Apr 21, 2005 1:05:44 PM
Tax credits for buying hybrids in the next 3 years?
Posted by: TJ | Apr 21, 2005 1:15:06 PM
Tax credits for buying hybrids in the next 3 years?
I thought incentives for buying them were already in the tax code.
Posted by: sglover | Apr 21, 2005 1:24:42 PM
There are some pretty obvious ways in which we could speed up reductions in oil use. Higher gasoline taxes would be a good start. Here are some others:
1. Raise CAFE standards. There's no technical reason not to. Current standards are absurdly low, especially for "light trucks". These standards should be pushing the limits of technology, but instead they're far behind not only what's technologically practical but even what's already on the market. Cars that get 50mpg are now proven technology. (I own one. 50mpg is what I'm getting; the paper mileage is higher.) Manufacturers who aren't making them yet should.
2. Get rid of the regulatory distinction between "automobiles" and "light trucks". Right now it's not just that we're failing to encourage low gas use, but that we're actually encouraging waste. A manufacturer who's making car with poor efficiency can reclassify it as a "light truck", making at most a few trivial cosmetic changes, and boost the on-paper CAFE numbers of both the car and truck lines. There are similar perverse incentives for consumers, who can receive tax incentives for poorly performing "light trucks" that they wouldn't receive for better designed cars.
3. Government sponsored home heating efficiency studies (e.g. with thermal imaging technology), and tax incentives for things like better insulation, high E windows, and 90%-efficient furnaces. This is particularly important for those parts of the country that tend to use heating oil, like the northeast.
4. National tax incentives for photovoltaics. We have those incentives in California, but other states don't.
5. Build new nuclear power plants. And no, I'm not talking about exotic new designs, I'm talking about the same basic pressurized light water fission reactor that we're alreadying using in the US. I'm not happy about some of the environmental implications of fission, but I continue to believe that it's better than more coal stripmining and more spills like the Exxon Valdez.
#4 and #5 on my list probably wouldn't have much effect for a decade, but that would still be faster than if we do nothing. The first three could be immediate.
Posted by: Matt Austern | Apr 21, 2005 1:44:03 PM
If Bush could harness patriotism to get the country to invade Iraq, he could also get the country to sacrifice and endure higher gas prices to help fight terrorism.
He doesn't want to, of course. But he could.
Posted by: fling93 | Apr 21, 2005 2:44:31 PM
sglover,
I really don't know. If so, good. Time to advertise that fact a bit more heavily ;)
Posted by: TJ | Apr 21, 2005 2:53:56 PM
The real current costs of oil are disguised by:
1) Our middle east police force preventing disruptions
2)The cheap dollar -- low long term interest rates -- Chinese artificial support for the dollar == housing bubble and consumer spending from refinancing money disguising inflation and a lack of sustainable productivity.
Quiggin is wrong. Commodity inflation is reflected in housing prices, and we are falling off a cliff.
Posted by: bob mcmanus | Apr 21, 2005 3:29:03 PM
"Commodity inflation is reflected in housing prices..."
I would think that the value of the land underlying the dwelling and the fact that the house is in existence (legally permitted) are more important factors than the cost of concrete, wood and drywall.
But I'd like to hear from an economist on that one.
Posted by: David Sucher | Apr 21, 2005 4:05:09 PM
"Most notably, the two key goals everyone is claiming for themselves -- cheaper gas and ending "dependence on foreign oil" -- are sort of incompatible."
Drilling in Alaska means more oil produced domestically, and lower prices (because supply increases). Not incompatible.
Posted by: Half Sigma | Apr 21, 2005 4:08:04 PM
Drilling in Alaska means more oil produced domestically, and lower prices (because supply increases). Not incompatible.
The effect of the amount, cost and type of oil that will be found in ANWAR will have on the price or supply of oil will be minimal to none. It is a sop to the people of Alaska and the oil companies, nothing else.
What we should wish for is low oil prices but an administration that realizes that high taxes on fossil fuels (enough to keep gasoline in the $3--4 a gallon range) is in the long term interest of the country. The revenue from such taxes can be used to pay down our debt and break our dependence on fossil fuels. It should have been imposed immediately after 9/11 as a "freedom from middle eastern terrorism tax" but Bush blew it. We need a program even more ambitious than the Apollo program and we need to be willing to pay for it. The survival of the country depends on it. Until the president is willing to talk in those terms and demand sacrifices of the entire nation we will get nowhere.
Posted by: Freder Frederson | Apr 21, 2005 4:25:46 PM
Seriously, I saw a stretch hummer in NYC a few days ago. It was so long there were probably 6 or 7 windows on each side, the proverbial bird flip to the "one world and we all have to share it" idea.
On a seat mileage basis, a stretch Hummer is probably a fairly efficient vehicle--think of it as a small bus. You may not like the symbolism, but if it had, say, a wedding party in the back or a bunch of kids on the way to the prom, it was probably doing better than an econobox with a single driver.
Posted by: mw | Apr 21, 2005 4:33:34 PM
" Raise CAFE standards. There's no technical reason not to."
Now, THAT is what I call trading blood for oil. I've got relatives who are alive today only because they were driving "gas guzzlers" when they got into a traffic accident.
Posted by: Brett Bellmore | Apr 21, 2005 4:40:37 PM
Now, THAT is what I call trading blood for oil. I've got relatives who are alive today only because they were driving "gas guzzlers" when they got into a traffic accident.
And there are lots of SUV drivers and passengers who are dead because they bought an SUV because they thought it was safer than a car and proceeded to die in a rollover accident. Safety, or lack thereof depends on a lot of factors. If you put a 20 hp engine in a 8 ton vehicle that got 30 mpg it would probably be the safest vehicle on the road. It would also have a top speed of about 10 miles per hour. You can design a safe car that gets good gas mileage. All you need is the desire to design such a car. Volvo has been designing such cars for years.
Posted by: Freder Frederson | Apr 21, 2005 4:57:27 PM
Brett Bellmore has relatives who got into an accident because they were driving. The rest is spin.
Posted by: epistemology | Apr 21, 2005 5:02:58 PM
"factors than the cost of concrete, wood and drywall"
Take real expensive wood to affect house prices. I meant that that commodity inflation is hidden by cheap money (M3, Chinese) = low interest rates = easy mortgages = housing bubble and inflating house prices. Housing prices are much more affected by interest rates than either demand or material(land)supply. Very few Americans can come with half a mill or more.
If the Chinese( and the rest of Asia, the smaller economies may be as important) stopped buying dollars tomorrow....the dollar would drop by a third, oil would move to $80-100, CPI would skyrocket, Fed would raise 2+ basis points, ARMs would cause massive foreclosures, housing values would fall thru the floor.
Posted by: bob mcmanus | Apr 21, 2005 5:29:11 PM
Actually, my brother's wife and baby daughter were t-boned by somebody running a red light, and thrown into the path of oncoming traffic. Thank goodness they were borrowing my mother's Olds 88, instead of that Chevette they'd rented for the visit. The car was a total loss, but they were merely shaken up. The police were quite certain they'd have both died if they'd been driving the Chevette.
The replacement got totaled when a steel hauler decided to pass my mother on the left, as she was making a left turn, despite the presence of a passing lane to her right. A broken arm and concussion were minor injuries, under the circumstances.
But, what the hey, feel free to assign blame for the accidents as you will, despite your total ignorance of the circumstances.
" Safety, or lack thereof depends on a lot of factors."
No question about it. But fundamental physics rules: Safety features occupy space, and possess weight. And making a car get ultra high gas mileage requires, unavoidably, making it small, and light weight. You might argue that it would all cancel out if you made all the cars smaller and lighter, but you'd be wrong. The physics don't work that way, even if you COULD make telephone polls and steel haulers lighter, too.
Posted by: Brett Bellmore | Apr 21, 2005 6:06:24 PM
Matt, this is your second column on this topic, and I still can't tell exactly what it is you are saying.
I suppose that almost any significant technological transition, looked at from a wide enough historical perspective, would appear to be an "orderly transition", and the economic pain, sluggishness and dislocation of a decade or two will of disappear from historical view if seen as the germ of 200 years of progress. Similarly, the loss of a million people in a war is nothing in the vastness of the universe. So, what sort of time frame do you have in mind when you look at the "big picture"?
Quiggen says:
Still, the evidence is against the idea that higher energy prices would bring the economy to a grinding halt. Rather, the response so far seems to be a textbook case of orderly adjustment, as people gradually shift away from gas-guzzling vehicles, look again at energy saving options and so on.
Where is the evidence? Does he cite it? And isn't there an awful lot of economic space between the stark dichotomy of an "orderly adjustment", as it would ordinarily be understood, and a "grinding halt"? In any case, Quiggen seems to take back the rosy assessment in the next sentence:
So far the response has been small, but over time (if supply declines and prices stay high) more substantial responses can be expected.
Suppose foodstuffs around the world increased in price by 100% or 200%. Now this would certainly cause a great deal of pain in the food sector for one thing. It's impact on everyone else might be minimized to some extent by achieving greater efficiencies and simplicity in our food-consuming habits, by substituting cheaper but equally nutritios foods, by the elimination of a lot of high-end, artisanal luxury foods from our diet, etc. But since food is essential input in our lives, and there is no real available substitute for it, a sudden increase across the board of that amount is likely to exact significant economy-wide costs. One might say: "No big deal. This will surely cause some pain, but we are transitioning in an orderly manner to a future in which we are all built largely out nuclear-powered robotic parts, and will require less food" Well, perhaps. But since the fullness of that transition is many, many decades away, this would be a rather polyannaish way of viewing the crisis. Do you have any reason to think that we are a lot closer in our ability to transition to a low-petroleum economy? Or will permanently higher petroleum prices produce enduring economic pain for decades?
Brett's comment about the alleged safety of SUV's aside, I do think that there is a great deal of space in the personal transportation market for a rapid, relatively easy transition to smaller, more efficient vehicles. Indeed, higher prices could even stimulate a lot of economic activity in that area. Even a charitable interpretation of the SUV trend - one that doesn't evoke conspicuous consumption - would suggest that there has been a sort of arms race in personal transportation, in which people need to buy larger cars to be safe from other large cars. So we may all be able to switch back to smaller cars with no net loss of safety.
But oil is an crucial input up and down our economy - adjusting to a world with less oil is not just a matter of making personal changes in the way we drive. It's not clear that their are enough substitutions and increased efficiencies to be had to guarantee an "orderly transition". Even if there are, that doesn't take into account the dislocations that will occur in the energy sector itself. If a technological shift occurs two rapidly, and there are sufficiently many people who are economic stakeholders in the old technology, the shift can indeed cause the economy to come to a "grinding halt".
I am inclined to agree that responding to immediate term political pressures to reduce oil prices is probably a bad idea, and only extends our society's habit of avoiding the inevitable and doing something about it. (Of course, if we are really interested in keeping oil prices low, one thing we could do is encourage exporters like Iran to convert their domestic energy economies to nuclear, so there is more supply for export, rather than discourage them.) But to say that is not to say that everything is fine, and the transition is going to be smooth. My own sense is we need to take much bolder steps to prepare for, manage and facilitate this transition. Over the next several decades, it is likely to cause dramatic redistributions of global power and wealth, a turbulent and unstable global security situation and intensified economic and military competition for dwindling energy suppiles - and the pain and dislocations will not just be "annoying".
Of course, even World Wars I and II taken together can be seen as relatively smooth transitions from an Old European to a New Russo-American world, if you step back far enough to take a Godlike cosmic view that smooths out all the bumps.
Posted by: Dan Kervick | Apr 21, 2005 6:24:28 PM
My remarks were not concerning SUVs, but simply vehicle weight and size. It's a regrettable distortion in the market, which has significantly compromised safety, that CAFE has forced the elimination of station wagons, and other large conventional automobiles, in favor of modified trucks, due to their different regulatory catagory allowing a CAFE work-around. Were it not for CAFE, the SUV craze would probably never have gotten started, and we'd mostly be driving large, heavy cars with low centers of gravity, and greater commonality of bumper height. And all be much safer.
Posted by: Brett Bellmore | Apr 21, 2005 6:37:40 PM
Yes Brett, and we'd be that much more dependent on oil. You are blaming CAFE, when the work-around is the problem. Baby with the bathwater. There will always be bigger vehicles on the road (trucks). If we got rid of the work-around then vehicles will be more normalized. Another problem in the SUV craze was Detroit's ability to get large profits by making the large vehicles. We would be safer if it wasn't for profit grabbing combined with bad policy (protection of the auto industry devaluing innovation).
Subaru makes a good station wagon. Nice space, good drive, nice control. It still can be done.
Posted by: Rambuncle | Apr 21, 2005 7:44:34 PM
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