WHAT NOW FOR RENEWABLE FUELS?
cutoilimports.blogspot.com
Thursday, September 07, 2006
For those of us who favor renewable fuels, the worst that could happen, is happening.
Crude prices plunged nearly two bucks in one day last week, after a two week period of decline, and is now some ten dollars per barrel below the early August peak. Those who predicted that $70 per barrel oil would spur a more intense search for new sources and make feasible a return to previously tapped-off wells were right. Current SUPPLY is up, way up, and while demand has stabilized, the up-tick in crude oil extraction is just beginning. Most capital investments made by the industry were predicated on $40 per barrel oil, so profits are still there for those who find or extract more oil. Some industry insiders predict $50 per barrel by Christmas. Gas prices in Virginia have declined to $2.35 per gallon, which consumers, having adjusted to $2.90 or more, see as a bargain.
So what will happen?
Rest assured, IF CRUDE REMAINS RELATIVELY LOW:
1-A shift in automobile purchases will include a move back toward less fuel-efficient vehicles, and away from hybrids.
2-Since ethanol profits at the retail level will take a big hit, less stations will proliferate.
3-Less investment capital will flow to ethanol production facilities, and the rate of growth in ethanol production will slow.
4-What a politician proposes to do about energy will move down the list of voter priorities.
5-Statistically, NO ONE will conserve. There will be no reduction in miles driven, no movement back to cities, and mass transit will continue to starve for riders.
We have a history to observe; time and time again cheap oil prices have stymied the renewable fuels industry, and will do so again, if it persists. Peak Oil proponents will have to deal with the fact that the recent HUGE discovery in the Gulf delays the day of reckoning by decades or more, and I predict there will be other large deposits found.
What now for renewable fuels? Deep breath everyone.
We can talk subsidies, we can advocate more stringent CAFE, and we can pour more money down the AMTRAK black hole, but if we do, we will CONTINUE to see each measure thwarted at every turn by unintended behavioral consequences and cheap oil.
OR....
...we can realize THAT THERE IS STILL A WAR GOING ON, and seize this opportunity to enact a tax on gasoline large enough to continue on a track toward eliminating foreign oil purchases, not to mention obvious environmental imperatives at work here.
The very definition of pathology includes placing faith in demonstrably failed behaviors, and in this issue we now have our very lives and livlihoods at stake. I have been told by many that there is no way the American people will put up with a gas-tax increase, especially of the magnitude required to do any good. I'm not so sure.
Not one of the prognosticators who are now predicting a drop in oil prices is willing to also predict that at some point, the price of oil won't go back up. Rest assured, at some point, it will. Do we just sit back and watch as cheap oil obliterates all we have worked to achieve, and wait for oil prices to go back up to begin the fight again?
I believe the American people instinctively realize that something has to be done NOW. Even those who don't make the connection between the current war being waged against us, and oil prices, can be persuaded that energy independence is an urgent, future-security related goal. In hindsight, we have sought in our energy policies of the last 36 years THE EASY WAY OUT. If there is a common denominator among the myriad collection of ill-fated subsidies, winner picking, and CAFE, it is that all of these policies shared the perception of being PAINLESS, at least to the majority, to implement. They also have in common the now-indisputable fact that they didn't work. We are more dependent of foreign oil today than we were in 1973. I do not pretend that what I propose herein would somehow be painless, it most certainly wouldn't; but doing NOTHING but allowing cheap oil to kill alternative solutions to our dilemma will have its day of reckoning, and it won't be painless either.
Speaking of pain, the reality is that we are already paying an additional premium on gasoline, embodied in the MILITARY SURCHARGE FOR OIL. This huge "tax" doesn't show up in the price at the pump, but it's there, and it's used, of course, to patrol the Straits of Hormuz, and buy favor from Middle Eastern oil despots through "foreign aid", not to mention wage war. You want to SUPPORT THE TROOPS? There simply is no better way to do so than for EVERYONE to become a warrior, and step into the foxhole with our soldiers by being willing to pay more at the pump, in order to extricate ourselves from a region where our currently-necessary presence endangers every one of us.
A large increase in the federal tax on gasoline needs to become a legislative priority. It could be phased in over a five year period in order to give the consumer time to adjust. It's time we begin to bite the bullet that we all know EVENTUALLY we're going to have to bite anyway.
We use 140 billion gallons of gasoline per year in this country. A $2 tax on gasoline would create a fund of 220 billion dollars, an amount that equates to approximately a third of the economic damage created by 9-11. The financial debacle created by 9-11 rolled off the US economy like water off a duck's back. With a five-year phase-in of the proposed gas tax, consumers and industry would have time to adjust, and limit the damage to budgets.
Hey, I'm a fiscal conservative. I abhor taxes of any kind, but this is WAR.
The increase in gas taxes would have to coincide with legislation that MANDATED that every car and light-duty truck sold in America to be flex-fuel capable, to include the internal combustion engine in hybrid-electrics, perhaps over the same five year period.
What then could be done with $220 billion to eliminate the purchase of foreign oil?
I would propose that EVERY DOLLAR of the fund derived from increased gas taxes be used to affect the DEMAND SIDE of the equation, because there is no need to subsidize the SUPPLY SIDE with $5 per gallon gasoline in play. The potential for profits and the removal of fickle, lobbyist-loving government from the playing field would cause investment capital to literally POUR into alternatives. The CONSUMER WOULD DEMAND IT, and there would be no need for the marvelous scientists seated in Congress to pick winners. For some in our legislature, who are still making critical policy decisions involving complex science and intricate price theory and resource allocation, nuclear fusion is what happens when the bacon comes out of the microwave stuck together, and the prevailing wisdom as to how to foster the conservation of a commodity is to make it cheaper to use.
Here's what could be done with the $220 billion:
1-Incentivize the purchase of hybrids and flex-fuel capable vehicles, thereby further increasing the demand for alternative liquid fuels. This incentive could conceivably be means-tested, available only for low-income consumers, as the mandate would eventually provide no alternative for new vehicle purchasers, except the implements of possible foreign-crude elimination.
2-Remove all subsidies and tariffs related to petroleum replacement products, including Brazilian ethanol, over the same five-year period. $5 gasoline IS ENOUGH to provide tremendous profit opportunities for corn farmers, renewable fuel research, ethanol producers, fuel retailers, none of whom would need to be further "incentivized", and costly government bureacracies could disappear.
3-Use the bulk of the fund to match state and local expenditures on mass-transit infrastructure, and passenger rail. Remember, the fund would provide some 220 billion dollars PER YEAR for such projects, and the shift from personal transport to mass-transit would be slow, but sure. The bureacracies already exist for such measures.
So, what do you think would happen?
I maintain that for the first time in our post-1973 history, TRUE CONSERVATION would become an imperative for every household and every corporation. The result would be an increase in car-pooling, a gradual, but inevitable move by populations back to cities, consumers would demand cheaper alternatives to gasoline, thus the need to purchase fuel-efficient vehicles would FINALLY couple with the need to DRIVE LESS MILES. The need would arise for companies to open regional offices and eliminate huge geographical domains served by the ubiquitous company car, there would also be a shift to bio-diesel, and the increased use of mass-transit would become an economic imperative in every home or office. Commercial trucking, for the first time in modern history, would be FORCED to turn to cheaper bio-diesel fuel.
I do not pretend that this proposal for higher gasoline taxes wouldn't also spur the search for more domestic sources of oil. Unlike other proponents of renewable fuels, for whom the quest satisfies environmental concerns, I advocate renewables for purely strategic and defense-of-country reasons. Even if our petro-dollars somehow stop falling into the hands of those who want to kill us, energy independence is inexorably tied to our future security. As a car dealer, I get hit in the pocket book every time gas prices go up, but there's nothing stopping me from selling buses.
In a day when everyone seems to be attempting to answer the question "are we safer", there is no doubt in my mind that unless and until we address our dependence on foreign oil the answer is no. Perhaps the most important question to ask and answer when evaluating what we plan to do is, WHAT IS THE MOST IMPORTANT GOAL WE COULD ACHIEVE THAT WOULD MAKE US SAFER? Liquid fuel independence would not allow us to totally extricate ourselves from all the problems the world could present us with, but would allow us to deal with our most dangerous current threat, and would tell the rest who would do us harm that we are serious enough about our security to stop taking the easy way out. |
