No Longer Time To Ignore Energy Independence

Today’s Courier Herald Column:

It’s Friday again, so we’ve all made it through another week.  And as usual, I’ll continue my Friday tradition of venturing away from Georgia politics. I spent two days this week in Detroit.  It was 5 degrees and snowing, so please try not to be jealous.

The location did have me thinking a bit about our auto industry as I literally watched gas prices rise.  Prior to the recent bankruptcies and bailouts, the US manufacturers produced their largest cars here, and generated much of their profits from large truck and SUV sales.

When gas prices spiked a few years ago, the quickly changing customer tastes for hybrids over trucks was one of the many straws that broke the camel’s back.   Republicans responded with “drill here, drill now”, while Democrats offered us CAP and Trade.   All talk, much of it loud, but no action.

Today, countries representing more than half of OPEC’s oil production are facing various levels of civil unrest.  Yet the US continues to rely on imported oil for 70% of our total demand.  About half of that is from our neighbors in Mexico and Canada, but the other half – roughly one third of oil we use on a daily basis – comes from the middle-east and Venezuela.  As if the stability these country’s governments was not enough to spur some action toward energy independence, the fact that we transfer hundreds of billions of dollars in US wealth to regimes that wish us harm should.

It’s time we started to take this issue a bit more seriously, rather than screaming like petulant children every time gas prices spike, yet quickly turning our attention elsewhere when the prices abate a bit.  To date, the most comprehensive energy policy has been forcing automakers to accept higher CAFE standards, which essentially mandate a minimum fuel economy for the entire fleet of vehicles sold by a manufacturer.

The problem with this strategy, however, is that it is ultimately the consumer who decides whether they will buy a 50 mpg Prius, or a 15 mpg Tundra.  The market decides what the CAFE number for Toyota is based on how many buyers prefer Prius’s over Corollas, or Tacoma’s over Tundras.  Consumers must understand and accept higher gas prices as a fact of life in order for them to make long term conservation decisions.

The demand side is not all that goes into the price of gasoline.  Suppliers also influence market prices.  But major oil companies operate on 50 year plans, and are generally slow to react to market conditions.  Much of the reasoning for this is that prices rise and fall, and most can simply purchase oil from abroad cheaper than it can be produced domestically.  Thus, the suppliers must have a strong pricing incentive to induce them to invest in producing domestic oil that is harder to extract and often harder to refine.

The solution to this problem, from a purely economic point of view, is an imported oil tax.  It should be phased in, over a period of 5-10 years.  If we exempted NAFTA countries from the tax, it would affect roughly 30% of the oil coming into our country.  For the purposes of this discussion, let’s assume the tax is revenue neutral, meaning other taxes will be offset with tax cuts elsewhere.  This would limit the negative income effect of the price increases in gasoline and transportation costs.

But it should be enough to send a signal to oil companies that they need to invest in domestic production for the long term, and for consumers to understand that prices will be going up, and to plan accordingly.  Likewise, Democrats will have to recognize that ANWAR can be drilled successfully with a total area disturbed smaller than a major US airport.  We must resume and expand offshore drilling, despite BP’s recent episode of gross neglect.  And we must adopt an energy policy that uses technology and resources available today – nuclear and natural gas – to diminish our dependence on imported oil.

The time to fix the roof is a day when it isn’t raining.  We’ve had a few dry years, but there are serious storm clouds on the horizon.  We haven’t time to waste, because we’ve already wasted so much.

32 comments

  1. John Konop says:

    Charlie,

    You better watch out before you are called a socialist, communist…..for wanting any solutions that the government is involved in. You have lost the ideological purest page by not preferring to shoot yourself in both feet rather than seek a pragmatic solution that does not match their blood oath. 😉

  2. Three Jack says:

    eliminate the epa and all the onerous regulations that dissuade new oil exploration/drilling onshore and near shore.

    adding an import tax to punish oil companies might be the ‘economic thing to do’, but it is so goresque. how much tax (tariff) will have to be added to force oil companies to do what the government wants them to do? will the tax/tariff be eliminated once oil companies comply with the government’s exploration mandate?

    • Charlie says:

      …And you enter with the standard GOP talking point. But at least you’re playing.

      I agree that Obama’s rules on Gulf drilling have cost us production as rigs were moved to South America as a result of the uncertainty there. But let’s assume you do what is suggested and we eliminate all regulations on drilling and even the EPA, for whatever that’s worth.

      You still have the problem that it costs more to produce oil domestically than it does to buy at an average historical cost from middle eastern countries. Also, that oil is easier to refine.

      You can allow all the domestic drilling you want, but if the oil companies determine that it will be cheaper to buy the oil from abroad, they won’t invest in drilling here.

      And nowhere, nowhere above did I mention an “exploration mandate” or forcing oil companies to drill. I’m advocating an imported oil tax that captures the negative externatilty for the security threat that imported oil faces. That in turn sends a price signal to the markets, both consumer and producer, that should encourage consumer conservation and producers to drill locally. It’s a market signal, and the markets can take it from there.

      • Three Jack says:

        charlie, actually i entered the standard ron paul/libertarian talking point. nobody in the gop or dem party has the courage to honestly address these critical issues because there are so many special intersts influencing them.

        i would argue that cost to produce oil domestically would drop considerably w/o all of the regulations imposed by the epa. only one way to find out…we know the over regulation method has failed.

        your idea equals an unforced mandate. you impose the tax to punish oil companies in the desire to have them do more domestically. depending on how high the tax will determine whether it turns into a mandate.

        and since you are now advocating tax rate manipulation to alter consumer behavior in oil/gas use, what next? maybe tolls on all roads that eventually force people to utilize mass tranist? where does it end?

        • Charlie says:

          It stops when we decide we’re going to try to solve a problem of strategic national interest as outlined by every President since Nixon, rather than throwing up hypothetical “where will it end?” examples as an excuse to do nothing.

          • Three Jack says:

            so we should go on an endless social engineering path utilizing selective taxation to force certain behaviors??? very goresque.

            i’ll go with less government based on almost every president since fdr having tried the opposite with not much to show for it. when nixon took office in 1969, gas was at .34 per gallon. now it is 10x that much and consumption is still on the rise. kind of hard to see how continuing to increase price will have the effect you seek since it hasn’t worked over the past 42 years.

            • Charlie says:

              Screaming “Al Gore” is not a policy argument.

              If you can come back with any data whatsover that shows your EPA/regulation boogey man, if removed, would result in actual production – not drilling rights, but actual domestic production – to replace 30% of the oil we import daily from countries that wish us harm, then we can continue this discussion. Otherwise, I relegate you to those described above who just want to scream “drill here, drill now” while making no attempt to work toward a solution that adds practial value to the problem.

              • John Konop says:

                Charlie,

                I guess you are a liberal communist because you dare to demand clean water, fish to eat not floating in oil, beaches not filled with tar…….. A real whacked out conservative knows that it is just the luck of the draw if you live near a newly created environmental waste land that you did not create. Just be happy a few jobs got created. 😉

                • Three Jack says:

                  right after you show me the proof that adding a tariff will cause oil companies to “invest in domestic production for the long term” despite the onerous regulations that currently dissuade domestic oil exploration/drilling and production.

                  and john, if you have nothing constructive to add, take charlie’s advice from a few days ago and knock it off.

                    • Three Jack says:

                      no, please no more adam smith!!!!

                      couple of decent reports on energy/environment from heritage.org (i know, another bastion of conservative ‘talking points’, can’t help myself):

                      http://blog.heritage.org/2011/02/23/10-things-you-need-to-know-about-high-gas-prices-and-obama%E2%80%99s-oil-policy/

                      http://www.heritage.org/Research/Reports/2007/06/Twelve-Principles-to-Guide-US-Energy-Policy

                      specific to raising taxes — “6. Ensure that any effort to reduce reliance on foreign oil is grounded in policies that are best for the economy. Reducing oil imports from unstable or unfriendly regimes should be done in a way that minimizes the economic cost to Americans. Policies such as raising taxes on gasoline while mandating or subsidizing expensive or unproven alternative fuels and vehicles lead to large costs with marginal-or even negative-results. The first steps in reduc­ing reliance on foreign oil are to make full use of domestic petroleum reserves and to remove disincentives to investment in oil production from friendly nations. These should be coupled with efforts to encourage diversification away from petroleum, which will be best achieved not by government fiat, but by the private sec­tor-led development of alternatives that can compete in their own right. Domestically, the federal role should be limited to conducting basic research and removing regulatory and tax barriers that impede private-sector innovation. In addition, restrictions on international growth in alternatives, such as the tariffs that limit ethanol imports into the United States, should be eliminated.”

                    • Charlie says:

                      “…while mandating or subsidizing expensive or unproven alternative fuels and vehicles lead to large costs with marginal-or even negative-results. ”

                      And, you’ll note, that’s exactly what I didn’t do. I said it would be revenue neutral, not that we would take the money to fund Jack’s magic beanstalk and alternative transit, inc.

                      Look at most economic analysis of what’s about to happen with today’s rising gas prices. They’ll quickly say it will eat up any positive benefit of the recent social security tax cut. The reverse could easily be true. You could offset the economic effect (consumer income effect) of higher gas prices by providing an offsetting tax cut of broad based income taxes, like FICA taxes.

                      I’m for eliminating ethanol subsidies as well. It takes 1.6 gallons of petrol to produce 1 gallon of ethanol. It has the compounding effect of driving up world food prices, which is largely cited as one of the reasons for civil unrest in the countries currently providing us oil.

                      There’s nothing else in your paragraph that is inconsistent with what I’ve proposed. With a guaranteed price signal sent to the markets, not only would oil produces have the incentive to produce more domestically by understanding they could get a return on their long term investments, but alternative energy companies which have a viable product could see it easier to achieve an acceptable ROI with the understanding that higher gas prices make their products more price competitive.

    • Progressive Dem says:

      Some folks along the Gulf coast might diasgree with removing enviornmental protections. And well they should.

  3. Mike Stucka says:

    Some years ago, the Canadian government figured out how much the health costs of a pack of cigarettes were, and raised the tax accordingly. There was strong disincentive to smoke.

    I strongly suspect if gasoline prices were adjusted through taxes to cover actual costs, the economy would implode ala Mad Max. If you factor in the amount of money spent on security in the Persian Gulf, … I’ve seen estimates of $10 a gallon more. There are some estimates here:
    http://www.icta.org/doc/RPG%20security%20update.pdf

    Scary stuff.

      • Mike Stucka says:

        Actually, I was marveling the other day that people who used to chain themselves to nuclear power plant gates to protect the environment now are demanding more nuclear power plants. (And the technology’s gotten better, etc.)

          • Engineer says:

            It really is troubling that China is leading the way in construction of nuclear power plants while we sit and twiddle our thumbs.

            • B Balz says:

              WARNING!! As of today – Facebook will automatically start dragging the Earth into the Sun. To change this option, go to Settings > Planetary Settings > Trajectory then UNCLICK the box that says ‘Apocalypse.’

              Facebook kept this one quiet. Copy and paste onto your status for absolutely no good reason whatsoever…Only 3% of you will repost.

  4. Progressive Dem says:

    This tax is what George Bush should have on done a month after 9/11. The revenue should be used for R&D new technologies to reduce energy consumption and the demand for fossil fuels. Instead we have been providing petrodollars to fund terrorism. We should have told those bastards, “we’re cutting you off.”

  5. Hardly says:

    Proposal: When we cut taxes elsewhere so the gas tax is revenue neutral, can we at least focus the tax cuts on the rich? That way taxes go up substantially for 100% of poor, lower, and middle class Americans and down for the top 1% of wage earners.

    I think that will help the proposal gather conservative support, and it just feels good.

  6. Doug Deal says:

    Until the country commits to nuclear power 100%, any plan to “wean us off foreign oil” or in any way effect how we get energy is wasted time, words and money.

  7. saltycracker says:

    We can only hope a tariff on imported oil would be easier to monitor than the old oil/new oil business. The foreign oil companies are pretty resourceful.

    Wouldn’t it drive further reduction of slim U.S. reserves ? Wouldn’t we want to discourage that ?
    http://en.wikipedia.org/wiki/Oil_reserves#Strategic_petroleum_reserves
    Drill baby, drill

    The greater/easier the government subsidy, the greater the enthusiasm to participate. It gets really ugly when local gov’ts jump in with taxpayer guaranteed programs or abatements on things they know nothing about.

    The cost/benefit ratio is getting very pricey on emissions as costs to deliver about everything in our life escalates due to overly strict regulations. Gore, Buffett, GE, Goldman Sachs and friends are on track to make billions as they place bets to squeeze select industries like power companies and trucking companies.

    While desiring to add alternative energy plants, they cannot feed the future demand for electricity, they just don’t serve the masses as nuclear can. Unfortunately there aren’t many nuclear, coal or gas power plants underway in the U.S . The public sentiment is low, the capital risk high & regulation higher.

    The poster child for a responsible power company getting beat to hell by the “stop the power companies for any reason” bunch just might be NextEra Energy, formerly known as Florida Power. A national leader in renewable energy – wind & solar – and under assault by the State’s PUC (appointed by C. Crist – looking for votes as a citizen champion, Rep-Indep.-MIA candidate ) where rate increases were needed & denied to fund a new nuke plant and other power plant improvements……result: $10 billion in projects cancelled…..

    • Harry says:

      Good comments. The Democrats and Oprah watchers will continue with their meaningless chatter around this issue; meanwhile the trade deficit will grow, brownouts will worsen around the country, and the price of energy will skyrocket. All those enviro-yuppies who want to destroy the suburbs and exurbs will get their wish, but will also be in the cold and dark in their cardboard condos in the cities.

  8. Gerald says:

    The energy independence thing is the classic case of “a pox on both your houses.” The left would continue to oppose more drilling even if it were conclusively proven that we have ample oil reserves and global warming and other serious environmental concerns are wrong/hoaxes because their primary concern is not energy policy, but opposing big business/the energy companies. And the right would oppose alternative energy even if it were conclusively proven that it was technologically viable and economically feasible because their primary concern is not energy policy, but supporting big business/the energy companies.

    I find both equally bemusing. The left doesn’t seem to realize that whatever energy breakthrough is developed, corporate America will simply dominate that too. It will just go from being “big oil” and “big coal” to “big wind” and “big solar.” Right now they are romanticizing about it because in other countries, governments are leading the “green energy” push, such as China’s sinking tons of money into manufacturing cheap solar panels. But the truth is that as soon as a viable business model comes along, corporations – meaning western and particularly American corporations – will dominate it, not third world socialist governments. That’s when “green energy” will go from being progressive to being the enemy. And of course when that happens, the very same conservatives that have spent all this time bashing alternative energy, insisting on “fossil fuels and fossil fuels only” will become advocates of the new technology, pretending as if private industry bravely researched, developed, pioneered and rolled out the new technology all themselves while government tried to keep them down with some maze conspiratorial maze of taxes, regulations, and Jesse Jackson affirmative action requirements that forced them to keep using fossil fuels.

    If this energy thing ever gets solved, it will be with apolitical types with no agendas or axes to grind one way or another, but instead are just scientists doing research (because that’s what scientists do) and entrepreneurs looking to make a buck (because that’s what entrepreneurs do). That said, because I do work in technology and am aware of how much of our breakthroughs came by way of government sponsored and funded research including but not limited to our national labs – and am also aware of how fewer economy driving breakthroughs have been produced since our national labs, government grants supporting basic research and other such things have been slashed since the “small government” push began in the 1980s – on this issue only I have to side with the big government socialists that Harry speaks of above.

    I actually think that the alternative energy technology is further along and closer to being economically viable than we think – and especially if “we” includes people who have ideological reasons to deny it – and that a major reason why it isn’t is because there is no economic motive to. All the real players in the U.S. energy companies are large corporations – and in many cases large multinational corporations – that have no financial incentive to innovate because they are making billions in profits on the existing technology. If necessity drives innovation and invention, if you are a large energy company making billions in profits, you have no necessity. Pro-business conservatives are deluding themselves to this reality. The problem is that the other side only tries to tax, regulate and otherwise punish big energy rather than assist “small energy” in developing the new technology. I guess they figure that if “small energy” creates a big breakthrough, then they’ll be “big energy” tomorrow, so it is better to force “big energy” through some tax and regulatory scheme to do this research instead, because if existing companies create the new technology, they’ll be covered by the existing regulatory scheme. It’s a ridiculous way to try to do business, but I suppose if you are anti-business in the first place, you don’t care too much. I actually think that they really do want China or India to beat us to the punch … that would strike a huge victory for “multiculturalism.”

    But as an example of how we have technology that we aren’t using … consider how we generate electricity. Most of it merely involves boiling water to create steam that drives these huge turbines. Whether it is fossil fuel (oil or coal), or nuclear power, that is all that we do, and it is also what “natural” energy sources i.e. dams and geysers do … use falling or naturally heated water to drive turbines. So … why not use solar power to boil water instead? The solar arrays can’t generate enough heat, you say? Maybe not.

    http://www.dailymail.co.uk/sciencetech/article-1351935/Eric-Jacqmain-invented-Death-ray-dish-intensity-5-000-suns.html

    “While many teenagers are content to sit at home playing computer games, this one has set his sights on something a little more ambitious.Eric Jacqmain, from Indiana in the US, covered an ordinary fibreglass satellite dish with 5,800 tiny mirror tiles – and made his very own ‘death ray’.When aligned correctly it can generate a heat spot a couple of centimetres across, with an intensity of 5,000 shining suns, the 19-year-old claims. The ray generates enough power to melt steel, vaporize aluminum, boil concrete, turn dirt into lava, and obliterate any organic material in an instant. It stands at 5ft 9ins and measures just 42 inches across.”

    So, if a kid in his back yard can make less than 6 feet tall and 4 feet across that can melt steel, do you honestly expect me to believe that we still need to build coal burning power plants in Early County, which ALREADY has one of the highest density of asthma sufferers in the state? The Democrats and Oprah watchers would like to know why the Southern Company isn’t using about 1000 of these things (which would cost $100 apiece to construct, max) to drive their steam turbines instead. (I admit, production would drop on cloudy days, but you’d still have the fossil fuel plants for then. The issue is that if you build plants using these things, on sunny days you wouldn’t have to run the fossil fuel plants at all. And on those days there’d be a lot less smoke filled with oil and carcinogens belching into the air.) Got any answers? Or am I an Obama-Oprah supporting Marxist for asking, and not having blind, cult-like faith in the private sector?

    And this goes for the left too … why try to pull off global economic/political/social regulation through cap and trade or other “global warming” regulation when you can just solve the problem by paying this kid to build a solar satellite dish that can boil water? (I think that it would be as simple as increasing the size of the heat spot. Instead of a tiny heat spot that melts steel, you aim for a larger convergence spot that, while much cooler, could still heat a large water container enough to produce steam. Failing that, you could keep the small heat spot, but in that spot place material that conducts and diffuses the heat so it can warm a much larger area much faster. Either way, it is simple physics and chemistry.)

    Either way, back and forth ideological bickering is much more fun than actually working to solve a problem. And that’s why it’s all that is ever done.

    • saltycracker says:

      Technological advances and innovation will be the big factor in how we reduce our dependence on fossil fuels. Referencing Thomas Friedman.

      Meanwhile whatever the feared right & left conspiracies or counter theory bickerings are they will melt away when these technologies are marketable. Evidence is the many “little companies” that came out of nowhere to make a big mark in businesses we though indomitable.

      So light my fire…….it’s not conspiracies of the powerful or lack of venture capital that are a problem – The market is waiting on a solar option or a heat exchange or an alternative power car with reliability & a reasonable payback….and some are right around the corner……

      I was also involved in biodiesel, LNG & electric power alternatives and if we could have figured it out to replace diesel without gov’t subsidies or high initial costs or fitness for purpose issues we could have kicked butt. But it ain’t over – getting closer and closer……

  9. NoTeabagging says:

    salty, isn’t there some advantage to converting McFry oil into biodiesel for say schoolbuses? Isn’t it more energy efficient than the heavily subsidized corn ethanol industry (which using huge amounts of petrochemical energy to convert corn to ethanol)?

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