Posted on 06/09/2008 9:55:57 AM PDT by Tolerance Sucks Rocks
Skyrocketing energy prices are hammering Americans.
Five years ago this week, gasoline cost an average of $1.43 a gallon at the pump; this week, it's $3.94. And home electricity averaged 5.43 cents per kilowatt-hour in 2003; it was up to 10.31 cents in December.
The underlying cause, of course, is that oil, coal and natural-gas prices have all gone berserk - with no relief in sight.
What to do?
Individually, of course, most of us will start conserving - people are already driving less, buying more fuel-efficient cars, etc. We'll keep on finding ways to save as prices stay high.
Should the government mandate even more conservation? No, "too much" conservation is as economically harmful as "too little." Just consider the economic harm that would be delivered by, say, capping speed limits at 30 miles per hour, or banning recreational long-distance travel. Both would save gobs of energy - but at the cost of doing more harm than good.
The only thing government should do on this front is ensure that prices are "right" - that is, that they reflect total costs. That's mainly an issue for electricity, where retail power prices typically bear little relation to wholesale prices. State governments need to encourage real-time pricing of electricity - so that consumers will get the signal to, for example, run the clothes dryer at night, when power is cheaper.
(Incidentally, those who argue that gas and diesel prices don't reflect important "external" environmental and national-security costs are simply wrong - at best, those added costs are trivial on a per-gallon basis.)
But there's a fair bit to do on the supply side. Congress could take four positive steps - if it really wants to bring prices down.
Open up key areas for oil and gas exploration and development. Washington has declared the Arctic National Wildlife Refuge and 85 percent the outer continental shelf off-limits. It's absurd for our politicians to fulminate about the need for more oil production from OPEC when they won't lift a finger to increase oil production here at home.
That said, it will take years to get these fields on-line (all the more reason to start now!) - and they'll do more for natural-gas prices than for oil.
By the time those new fields would be producing, global oil production will probably be about 100 million barrels per day. Optimistically, the fields would yield about 3 million more barrels a day - for a long-run cut in the price of crude of about 3 percent.
But US natural-gas reserves are almost certainly far greater - and gas prices are highly sensitive to regional (rather than global) supply and demand issues, so we'd likely see far greater reductions in electricity prices.
Open up the West to oil-shale development. The United States has three times more petroleum locked up in shale rock than Saudi Arabia has in all its proved reserves. But this US oil is costly to extract. Oil prices need to be at at about $95 a barrel to allow a reasonable profit from extracting oil from Rocky Mountain shale.
Well, it's probably profitable now; there's undoubtedly great investor interest in harnessing shale. Only problem: It's mostly on federal land; Washington has so far said, "Hands off!"
Environmentalists object to both these first two ideas - insisting that the wilderness that would be despoiled by energy extraction is worth more than the energy itself. That's nonsense - faith masquerading as fact.
How much something is worth is determined by how much people are willing to pay for it. If these lands were auctioned off, energy companies (the market representatives of energy consumers) would outbid environmentalists for virtually all of them.
Empty out the Strategic Petroleum Reserve. This now holds 700 million barrels of oil; draining it could add add up to 4.3 million barrels of crude a day to the market for about five months. That's nothing to sneeze at - it's about half of what the Saudis now pump and almost twice what Kuwait puts on the market.
At the very least, this would bring gasoline prices down. And if the theories of a speculator-created "oil bubble" are true (I doubt they are), it would pop the bubble and send prices tumbling.
What of the national-security risk? Another myth. As long as we're willing to pay market prices for crude oil, we can have all the oil we want - embargo or no embargo.
A real US physical shortage is impossible unless a) all international oil actors refused to do business with us - which won't happen, or b) a foreign navy stopped oil shipments to US ports - which the US Navy is more than competent to prevent.
Opening this spigot now also means a $70 billion windfall for the US Treasury.
Suspend (or end) federal rules that force refiners to use only low-sulfur oil to make gasoline and diesel. This is easily the best short-term fix for high gas prices.
Refiners were once relatively free to use heavy crude to make transportation fuel. Today, environmental regulations make it difficult and costly. And there's actually a (relative) glut of heavy crude right now.
Light-crude oil markets are incredibly tight, with no real excess production capacity. Heavy-crude markets are robust, with plenty of crude going unsold for lack of buyers.
Suspending low-sulfur rules would bring those heavy crudes into the transportation fuels. Oil economist Phil Verleger says it could well send gasoline and diesel prices plummeting.
A pity the GOP doesn’t have a presidential candidate with the brains or spine to act accordingly ...
btt
Can’t argue with any of that, but the Dems will try to block it.
I would add replacing all electric generating plants with nuclear powered units and developing coal gasification and liquification plants to provide additional sources of energy and heating fuel.
Replacing diesel trains with electric powered units would also help, as well as exploring fuel cell power.
100 years ago this wouldn;t be a problem. We’d just find a solution as we always have.
Today, with increased government regulation and radical extremist pressure groups like the global warming kooks, the power of free enterprise has been stifled.
Sounds like a good idea... if you are not a stickler for states rights and such.
The tax per gallon of gas in 1950 was roughly 1.5% of the price.
Today, federal, state, and local taxes account for approximately
20% of gas’s posted price. Taking inflation and the increase in
taxes into account (assuming no change in supply or demand) the
same gallon of gas that cost 30 cents in 1950 should today cost
about $3.13.
http://mises.org/story/2940
Another problem that is facing us is the state want to increase gas taxes. People are already going broke and not spending their money in stores but putting it in their gas tanks and the states want to up the taxes. Barbara Boxer wants an additional .53 cents a gallon put on California gas. What they are looking for is complete and total control over the people by taking their money.
Regarding taxes, in California, sales tax is added to the pump price of gas. So, at the tax rate of 7.75%, they were getting 23 cents a gallon of sales tax when gas was only $3 a gallon. At $4 a gallon, they are getting 31 cents per gallon. Then the federal and state gas taxes are in addition to that. But in states where gas is subject to sales tax, the state gov’t is benefitting from higher prices.
Recent court cases show that where emissions are concerned, there are no states’ rights.
The EPA should just quite balkanizing the fuel markets.
Most of this reflects what has been written here and lots of other places in the last few years. Glad to see that CATO is trying to keep up with FR
But this “gem” stinks:
Empty out the Strategic Petroleum Reserve
Apparently the Catoite who wrote this believes that there is a myth and that the free market can somehow provide all the hydrocarbons we need. NOT!
There is no earthly way to supply our needs if OPEC - aka the Islamic dominated oil suppliers - decides to stop sending oil.
We need to ensure a modicum of emergency supplies given the desperate nature of our enemies. Better yet, increase the amount of oil and gas we get from other NON OPEC sources whether our own or other NON OPEC oil producers.
Court cases? You mean a judge decided? I’m just playing devil’s advocate here where just a few short months ago some were touting “principles”. I think we should be able to drill off shore too but many states object.
How many of the season boutique blends are state mandated vs. federally mandated?
And if the federal government has the constitutional power to mandate the maximum number of gallons my toliet can flush, surely they have the power to dictate fuel blend limits.
And they can just do what they always do. Not make it mandatory, but failure to comply results in the loss of highway funds.
Most of those countries have NO other economy to speak of (and the ones that do are the ones that are least affected by the nutbar strains of Islam).
Lynch an environmentalist every other day.
“The underlying cause, of course, is that oil, coal and natural-gas prices have all gone berserk - with no relief in sight.”
Au contraire, mon ami, the underlying cause is a ‘Demonratically’ controlled congress who refuses to let us go get, and refine our OWN resources!
Aren’t offshore areas federal (aside from the immediate few miles that are state territory, IIRC)?
>> Can’t argue with any of that, but the Dems will try to block it.
That’s why it’s called fighting. It’s too bad that the GOP lacks anyone with a spine to fight for our energy (and economic) independence.
It’s amazing that John McCain stood up to people that were physically torturing him for over 5 years, but he’s afraid of the names that people will call him if he said, “Drill here. Drill now is my plan and we won’t take anything less than this.”
Sticks and stones...you know?
Sort of like electricity in California, back in the Enron days, come to think of it. I think the bizarre run-ups in electricity then and fuel now capitalized upon the same loophole.
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