Thursday, May 25, 2006

Gas Price Schizophrenia

I'm not sure I can recall when there was such an enormous divergence of views on something as basic as gasoline prices. On the one hand, many commentators, politicians and citizens decry the high price of gas and its attendant economic impact, particularly on lower-income consumers. We see legislation banning gouging, the definition of which no one can quite seem to pin down, and proposing to roll back federal or state gasoline taxes, as New York has done. GM has even gone so far as to offer to cap gasoline prices at $1.99 for some buyers of its less thrifty vehicles, based on actual usage monitored by OnStar telemetry--effectively an SUV sticker price rebate by another name.

At the other extreme, environmentalists, venture capitalists and pundits such as Tom Friedman of the New York Times are calling for higher fuel taxes of one sort or another, in order to promote efficiency and stimulate the growth of alternatives. Senator Clinton's proposal to establish a $50 alternative fuel fund, financed by a fee on oil company profits, would likely fall into this category, once its full implications played out.

For example, it would shrink the capitalization of US energy companies like ExxonMobil, Chevron and ConocoPhillips that report their global profits here, relative to their European, Russian and Chinese peers that would only be taxed to the extent of their US operations. The Senator's plan, which exempts from taxation oil company profits reinvested in alternative energy, is also likely to create a bubble in the share values of alternative energy firms, since $50 billion is quite a lot of capital to set chasing the small--though rapidly growing--alternative energy sector. The net result of all this for US consumers is hard to predict, but it would certainly put a damper on the additional domestic resource exploration currently being stimulated by high oil and gas prices. How this would achieve the stated goal of reducing US oil imports without first expanding them is a paradox beyond my modest knowledge of economics.

Before we can hope to make sense of such a conflicting welter of proposals, we need to have a national debate on whether high retail fuel prices are good or bad in general--including the possibility of providing direct relief to buffer those least able to bear them. If we were to agree that higher prices, painful as they are, are ultimately beneficial because they reduce demand and lower our emissions of all sorts of bad things, including greenhouse gases, then we should abandon efforts to roll back prices through tax cuts or other interventions. At that point a floor-price tax or other surcharge on gasoline and diesel might provide a better way to fund Senator Clinton's $50 billion alternative energy program.

If, on the other hand, we decided that high fuel prices are bad for the economy and terrible for consumers, then we ought to unleash the only measures that can actually apply downward pressure on them: fast-tracking additional supply--including oil and gas, as well as alternatives--in tandem with improving efficiency, including more economical cars and lower speed limits (or stricter enforcement of existing speed laws.) We might even find that taxes on engine horsepower or higher "gas guzzler" fees make more sense than higher fuel taxes. And if manufacturers chose to absorb those taxes while they retooled to make more frugal models, that would be a business decision, just like GM's price-cap gimmick.

Not to pick on my SUV-driving readers, but the perfect example of our national schizophrenia on this issue is the driver of a 6000 lb. Ford Expedition--with its brick-like aerodynamic properties--who zooms down the highway at 80 miles per hour, pulls into a gas station, and curses the oil companies for charging $3.50 for premium unleaded. Until we begin to connect our own behavior as consumers and citizens with the prices we pay for energy, the national debate on this subject will continue galloping off in all directions.

No comments: