the price of oil
E knows I’ve been saying this for a long time now, but here’s a nice article in the New York Times magazine on the subject of oil prices. (Thanks, A. It looks like I’m going to end up quoting and commenting just like you did. I can’t help myself). Here’s the first thing that caught my eye:
It’s actually the lower bound that should concern Washington now. When you ask economists what the minimum oil price is to sustain the development of alternatives to gasoline — new battery systems or sugar ethanol or even wood chips — you get a range of something like $75 a barrel to maybe $150.
And here’s some wisdom on why subsidies are a bad idea. Better to tax what you don’t like (carbon emissions, essentially) than guess which technology is going to be the best in the long run:
This is what every energy pioneer wants: subsidies for what it does. But Congress is probably not the optimal institution for anointing technological winners. Its mandate to use corn for ethanol, while it has done wonders for Iowa farmers, has led to sharply higher corn prices and has not added much (if anything) to the country’s energy supply. And even if politicians act with the purest of motives, there are simply too many possibilities for the car of tomorrow (fuel cells, nickel-hydride or lithium-ion batteries, natural gas, biofuel from wood chips and oil itself) to know which will prove the most feasible.
And finally:
The way to avoid a repeat is to dust off an idea that Gerald Ford once proposed: a tax on oil. Ideally, it would kick in only if the price fell back to, say, $70 a barrel. The beauty of this tax is that, very likely, no one would have to pay it. The tax would merely serve as a floor — a new lower bound. Auto companies would never have to worry that cheap gas would tempt consumers away from efficient cars; investors could finance development of batteries and fuel cells, because cheap oil could never undercut them. Oil itself would be used more sparingly and last longer. The oil market did its part when it sent the price to almost $150. The government should make sure there is no going back.
Couldn’t have said it better myself, although I have tried. What I find fascinating about this approach, and the Pigovian tax it derives from, is how elegant and effective, yet politically unpopular a solution it is.
While Americans were busy complaining about the price of gas and sympathizing with police stations and middle class families’ fuel expenses, we were silently solving the problem by changing our habits. CAFE standards didn’t need to be increased, nor was there a massive public education plan. All it took was a little financial incentive.
Meanwhile in Seattle, there are discussions about whether the replacement bridge for route 520 should include a toll system. Like the fancy E-ZPass system in use in other states. It could be worse, I suppose, but I can already see the myriad of questions that will come up. If there is a toll, how much should it be? Per driver? Should HOV cars pay less? What about heavy vehicles? Should there be peak rates, etc.? What price will be required to ease congestion effectively?
How about just have a gas tax that’s high enough to discourage driving, period? Guess what? Suddenly, instead of only 520 becoming drivable, I-5, I-405 also become less congested! Spend that money on a cohesive transportation strategy, and all of a sudden people will wonder why they don’t live here.
