Friday, October 08, 2004

Oil Prices and the Election
A friend forwarded a copy of this week's other interesting energy editorial, Robert Samuelson's Washington Post piece on oil prices and the election. (Free site registration required.) In it, Mr. Samuelson weighs in on the depletion debate--at least by reference to the recent PFC Energy study--and finds both candidates' energy policies lacking, characterizing them as fantasies.

Before I quibble with a couple of his suggestions, I want to applaud him for being one of the very few commentators to recognize the obvious: that we need a energy policy that deals effectively with both supply and demand. Unfortunately, the Administration's policy has been largely supply-driven, while Senator Kerry's looks chiefly at demand management (via efficiency, rather than taxes,) as did the Clinton Administration's policies.

Now to my quibbles: Mr. Samuelson apparently sees the Strategic Petroleum Reserve as a way to help manage the market. Fill it when prices are low; stop when they go up. In my view, an SPR is worth filling most of the time, regardless of price (with rare exceptions such as now, with surplus global production capacity exhausted.) Better yet, it should be privatized by giving companies incentives to hold the inventory for us, and to manage the accompanying price risks using the standard tools of risk management.

And while proposing a high gas tax to encourage better fuel economy (see my blog yesterday for more on gas taxes), he misses the opportunity to suggest rationalizing the Corporate Average Fuel Economy (CAFE) standards by eliminating the SUV loophole, or eliminating CAFEs entirely as relics of a bygone era of government control. In practice, a more modest combination of these moves might achieve similar results, by giving carmakers the rights signals to produce lighter, more efficient vehicles and giving consumers the right signals to buy them. This would eliminate the carmakers' standard lament that when they build economical cars, no one wants them.

Even with these cavils, though, the article is an excellent commentary that I sincerely hope both campaigns are reading and digesting. Might there be a debate question or two in it?

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